INTEGRATED REPORT 2019 - Hyundai Heavy Industries · supply equipment worth KRW 38.5 billion. Under this contract, Hyundai Electric is scheduled to supply gas insulated switchgears

2019

HH

I GR

OU

P IN

TEGR

ATED

REP

OR

T 2019

H H I G R O U PINTEGRATED REPORT

HHI GROUP INTEGRATED REPORT 2019

OurIntegratedReport2019introducessustainablemanagement

outcomesachievedbyHyundaiHeavyIndustriesGroup’slistedcompanies.

Toproviderelevantinformationtostakeholders,coreissuesderivedfrom

ourmaterialityassessmentarereportedonthebasisofourgroup’sfive

managementphilosophies.

ReportingPrinciples

̇GRI (Global Reporting Initiative) Standards (Core)

̇ International Integrated Reporting Council’s (IIRC) integrated reporting

framework

ReportingBoundary

̇ Sustainability Performance: listed companies only (HHI Holdings, HHI,

Hyundai Electric, HCE and HMD)

̇ Business Review & 2018 HIGHLIGHTS: Hyundai Oilbank and Hyundai Global

Service also included as subsidiaries of HHI Holdings

̇ Financial Highlights: consolidated basis with all affiliated entities of

the Group included

ReportingScope

Overall economic (under K-IFRS), social and environmental aspects of

our sustainability management

ReportingPeriod

For the year ended Dec. 31, 2018 (with exceptions for some of

the achievements: Jan 2016 to Mar 2019)

ReportingFrequency

Annual (last report issued in June 2018)

ReportingAssurance

Third party’s independent assurance (overall sustainability management,

GHG emissions and energy consumption separately verified)

HHI Group integrated report 2019 is available on our website

(www.hyundai-holdings.com). As an interactive PDF for more convenient

user experience.

http://www.hyundai-holdings.com

2018 HIGHLIGHTS

HGS

Large volume of remodeling orders for

greener ships Hyundai Global Service

(HGS) signed an agreement to install by

2020 exhaust gas cleaning systems (EGCS),

often referred to as scrubbers, on a total of

16 ships owned by SK Shipping, including a

300,000-ton VLCC (very large crude carrier)

and an 80,000m3 LPG carrier. In 2018,

Hyundai Global Service installed scrubbers

on 105 vessels, posting a cumulative third-

quarter sales record of USD 390 million. Due

to tightening environmental regulations

by the International Maritime Organization

(IMO), the demand for onboard eco-friendly

facility installation is expected to continue to

grow in the future.

Establishment of a smart factory for industrial robots Hyundai Heavy Industries Holdings

(HHI Holdings) signed an agreement with Chinese robot maker Jiangsu Hagong Intelligent

Robot (HGZN) on the establishment of a joint venture that manufactures and sells industrial

robots and provides after-sales service. The goal is to establish a smart factory by the end

of 2019 producing four types of industrial robots, aiming at manufacturing and selling a

cumulative total of 17,000 units by 2022.

Inroads into medical big data business HHI Holdings signed an agreement with Kakao

Investment and Asan Medical Center to establish a company specialized in medical big data.

Asan Kakao Medical Data, as Korea’s representative medical data platform, will play a key role

in driving the growth of Korea’s medical data market.

Strategic corporation system for robot business HHI Holdings signed an agreement with

Germany’s KUKA Group, a global robot company, for joint R&D and sales of industrial robots.

Utilizing its domestic sales network and after-sales technical support, HHI Holdings has set a

goal of selling 6,000 units of small and large robots by 2021.

Hyundai Oilbank

Pre-IPO investment agreement with

Saudi Aramco Hyundai Oilbank signed a

pre-IPO investment agreement with Saudi

Arabia’s state-owned oil giant Aramco, worth

up to KRW 1.8 trillion. Responsible for 15%

of the crude oil being produced globally,

Aramco was attracted to the impressive

growth potential of Hyundai Oilbank as

demonstrated by its notable advancement

ratio (40.6%) and profitability, both of which

are the highest among Korean oil refiners.

HHI Holdings

2

2018 HIGHLIGHTS

3

World’s first SMR Pilot plant for LNG carriers Hyundai Heavy Industries (HHI) completed a

single mixed refrigerant (SMR) pilot plant that re-liquefies vaporized gas from LNG carriers and

received its safety approval from Korea Gas Safety Corporation. The SMR system is capable of

re-liquefying 100% of the evaporative gas generated from LNG tankers, and four LNG carriers

requested by Greek and Russian shipping companies to be built will be the first set of vessels

that this technology will go into.

ESS Center to reduce energy costs HHI established the world’s largest-scale industrial

energy storage system (ESS) center at its headquarters in Ulsan. Its 51.5MW capacity is

approximately 20% of the Korean government’s target (270MW per hour) for ESS expansion

in 2017. It saved HHI as much as KRW 10 billion in energy costs over the past year by

reducing peak power consumption and increasing energy efficiency.

HHI-Scrubber for ships HHI developed a proprietary scrubber system (HHI-Scrubber) that

meets the requirement under IMO’s regulations. Thanks to its all-in-one design, HHI-Scrubber

requires 30% smaller in size than the other models, while equivalent in performance. With its

easy installation and excellent space utilization, the goal going forward is to win orders for

more than 50 units each year, focusing on both the new shipbuilding and retrofit market.

Contract to supply electricity equipment to Kuwait substation Hyundai Electric & Energy

Systems (Hyundai Electric) signed a contract with Al-Ahleia, an EPC company of Kuwait, to

supply equipment worth KRW 38.5 billion. Under this contract, Hyundai Electric is scheduled to

supply gas insulated switchgears (GIS) and shunt reactors by December 2019 to be installed

at the substation of the Public Authority for Housing Welfare of Kuwait.

First Korean electric equipment company to open Reliability Assessment Center

Hyundai Electric became the first Korean electric equipment company to establish a reliability

assessment center to research, improve and evaluate the quality of products. It is expected

that the center will help expedite the product development process by conducting in-depth

research on product durability, environmental resistance and stability, while also contributing

to reducing the cost of testing via external agencies.

Agreement on a new renewable project Hyundai Electric signed an agreement with the

city of Yeoju city to construct a KRW 20 billion photovoltaic power generation facility on unused

land. A 6.5MW solar photovoltaic panel and a 20.5MWh energy storage system will be embedded

in the bike path and nearby Namhan-gang river in Yeoju under this agreement. Some of the

profits will be invested in fostering of talents in the new and renewable energy field.

HHI

Hyundai Electric

4

2018 HIGHLIGHTS

5

Korea’s first electric excavator Hyundai Construction Equipment (HCE), in conjunction with

US engine maker Cummins, developed Korea’s first excavator that is 100% electrically powered,

3.5-ton compact model. While equivalent in performance to conventional excavators powered

by diesel engines, electric excavators are emission-free. They also have a much lower noise level

and are eco-friendly, cutting fuel costs by up to 60%. HCE’s endeavors to proactively adapt to the

changing market environment and cater to the needs of different customers will continue, which

include increasing R&D for intelligent excavators.

Donations for flood-hit India HCE joined the international relief efforts for India’s southern

state of Kerala which was hit by the worst flooding in nearly a century, donating construction

equipment (10 mid-sized excavators) and funds in the amount of KRW 50 million. The

excavators were of great help in damage repairing, mainly used to demolish buildings that

collapsed in the flood and restore the road network. HCE will continue to provide relief to

areas affected by natural disasters.

Opening of Technology Training Center For systemic nurturing of professional technicians,

HCE opened its Technology Training Center. The center is equipped with a parts exhibition

room, meeting rooms and training rooms where a total of 20 training courses are available.

It is expected to do much to improve quality in various fields, offering professional trainings

on standard assembly methods of equipment and prevention of leakage and other frequently

occurring types of accidents.

Two ships selected as RINA’s ‘Significant Ships 2018’ Two of Hyundai Mipo Dockyard’s

(HMD) vessels (31K RO-PAX ship and 7.5K LNG bunkering vessel) made the list of the Royal

Institution of Naval Architects’ (RINA) Significant Ships 2018. With this, HMD was officially

recognized for 18 consecutive years for its excellence in quality. The RO-PAX ship is equipped

with various safety facilities, such as a navigation satellite system and an automatic fire alarm.

The LNG bunkering vessel adopted for the first time in the world the eco-friendly ‘ballast free’

technology which removes the need for ballast water treatment systems while still ensuring

safe navigation, drawing attention from the global shipbuilding and shipping industries.

A milestone of 1,000 new ships built In a matter of 20 years since entering the newbuilding

business, HMD has built a total of 1,000 ships for 182 owners in 39 countries around the world.

The aggregate volume of ships delivered by HMD amounts to 17.35 million compensated gross

tonnage (CGT), or about 75% of the world’s total order volume of 23.22 million CGT in 2018.

HMD will continue its innovative efforts to contribute to Korea’s economic growth.

Winner of Ulsan City Industrial Peace Award 2018 HMD is proud of its win-win labor-

management relations, as evident in having zero disputes over the past 22 years. In

recognition of its exemplary labor relations amidst of severe difficulties faced by shipbuilders,

the Ulsan Chamber of Commerce and Industry granted HMD the Industrial Peace Award 2018.

HMD’s labor and management will make united efforts to navigate these times of uncertainty

to solidify transparent management and take a bold leap forward.

HCE

HMD

6

2018 HIGHLIGHTS

7

PART 1.

OVERVIEW

GreetingfromGroupViceChairman 10

HHIGroupataGlance 12

GlobalNetwork 14

ValueChain 16

Greeting from Group Vice Chairmanas a global technology leader in their respective areas of expertise, and the group will spare no effort to

provide support along the way.

To that end, we have three clear visions: a respected corporation with advanced technologies and

high-quality products, a trusted corporation with fair and transparent management and an admired

corporation with social contributions.

In doing so, HHI Group aims to solidify its position as a cutting-edge technology group and we are

scheduled to break ground in the second half of this year to build a global R&D center to serve as the

group’s key driver and mechanism for growth. Also, our endeavors for sustainable growth in economic,

environmental and social terms will not cease.

HHI Group has been assessing and mitigating environmental risks at its main business establishments

for integrated environmental management, while continuing the investments to minimize negative

environmental impacts, including reduction of greenhouse gas emissions. By developing core eco-

friendly technologies, the group is also leading the market for green products that satisfy increasingly

tightening international environmental regulations, such as IMO’s regulations on air pollution and sulfur

dioxide emissions.

We also believe safety is a top priority that cannot be compromised. Each entity has a safety

management control tower under immediate supervision of the CEO, regularly convening the Industrial

Safety and Health Committee with representatives of labor and management. Across all entities within

the group, safety culture is in place that conforms to the basics and principles of safety, implementing a

reward system for exemplary practices, setting the ‘must’ safety rules and operating a safety academy.

We will continue our activities for local community development and social contribution. Going forward,

as a leader in corporate social responsibility, we plan to set up a group-level social contribution council

and volunteer organization for our personnel, to enable systematic voluntary and contribution activities

for our society and local communities.

Lastly, we are bolstering ethics and compliance management to nurture a transparent and sound

corporate culture. We have revised the Fair Trade Compliance Program according to the trend of

reinforced regulations related to fair trade and expanded on-site inspections to enhance preemptive

response. In order to establish an ethical corporate culture, we have a reporting and reward system

in operation, while also listening to the voice of our partner companies as well as our own employees

working on various sites to diagnose and improve the level of ethical management.

Each and every one of us at HHI Group remains steadfastly committed to bold innovation to add further

value for stakeholders to unlock a brighter future for all. We appreciate you joining us as we continue to

strive to achieve such great missions.

Thank you.

Dear stakeholders,

I would like to extend my deepest gratitude for your continued support and

interest in our group.

Last year, HHI Group experienced monumental changes that entailed a new management environment.

The year 2018 witnessed our group’s reorganization into a holding structure, which involved HSHI’s split and

merger and HMD’s sale of its entire HHI shares in order to eliminate a web of circular shareholdings between

companies in our group. Going forward, each entity will focus on their own areas of business and pursue an

active dividend policy to ensure a greater shareholder value.

In 2019, Korea Shipbuilding & Offshore Engineering (KSOE) will be launched as a sub-holding company

controlling the group’s shipyards, KSOE will present mid- and long-term development directions and

growth strategies of our shipbuilding and marine businesses as a company specializing in R&D and

engineering, taking our technological competitiveness to the next level.

With HHI Holdings leading the efforts to discover future business opportunities and reorganize the

group’s existing business portfolio, we count on each entity in our group to establish more independent

and responsible management practices under a professional management system to continue to evolve

ViceChairman&CEOofHHIHoldings

Part 1. Overview GreetingfromGroupViceChairman

10 11

Hyundai Spirit

Profile of HHI Group’s

Listed Entities

Management Vision

Management Philosophy

We firmly believe there is no challenge too great for us to meet with our

dauntlessness and unwavering drive backed up by the infinite potential, no matter

how impossible it may seem at the moment.

We have five management philosophies in place that must be shared and practiced

by all employees to fulfill our corporate social responsibility.

Withitscreativepioneeringspiritandindomitablewill,HHIGrouphasgrownintoagloballeaderinheavyindustries,

encompassingcomprehensiveareasincludingshipbuilding,offshore,electricalandelectronicsengineering,robotsand

constructionequipment.

HHI Group at a Glance

CreativeWisdom

Wisdom to seek novelty

and innovation to meet

the needs of customers

and our society

StrongDetermination

Attitude to take bold

adventures with a strong

sense of mastery

UnwaveringDrive

Power to achieve goals

with a strong spirit and

indomitable will

ARespectedCorporation

withAdvanced

Technologiesand

High-QualityProducts

ATrustedCorporation

withFairandTransparent

Management

AnAdmiredCorporation

withSocialContributions

1Enhancing

CorporateValue

through

Continual

Growth

2Upholding

Fairand

Transparent

Business

Practices

3Pursuing

Safeand

Environmentally

FriendlyBusiness

Practices

4Promoting

StrongLabor

RelationsBuilt

onMutual

Respectand

Trust

5Demonstrating

OurCommitment

toGlobal

Corporate

Citizenship

CorporateName Hyundai Heavy Industries Holdings Co., Ltd.

FoundationDate April 3, 2017

CEO Kwon Oh-gap

No.ofEmployees 367

CapitalStock KRW 81.4 billion

MainBusiness investments (holding), industrial robots,

automation systems (operating)

HeadOfficeAddress 50, Technosunhwan3-gil, Yuga-myeon,

Dalseong-gun, Daegu, ROK

*For a breakdown of headcount, see pages 474-476 of HHI Holdings’ annual report 2018.

CorporateName Hyundai Heavy Industries Co., Ltd.

FoundationDate December 28, 1973

CEO Han Young-seuk, Ka Sam-hyun

No.ofEmployees 14,884


MainBusiness ships, marine EPCs, engines, etc.

HeadOfficeAddress 1000, Bangeoginsunhwan-doro, Dong-gu,

Ulsan, ROK

*For a breakdown of headcount, see pages 567-573 of HHI’s annual report 2018.

CorporateName Hyundai Electric & Energy Systems Co., Ltd.


CEO Jung Myung-rim



MainBusiness electric equipment related to power

generation, transmission and distribution

HeadOfficeAddress 75, Yulgok-ro, Jongno-gu, Seoul, ROK

*For a breakdown of headcount, see pages 327-330 of Hyundai Electric’s annual report 2018.

CorporateName Hyundai Construction Equipment Co., Ltd.


CEO Kong Ki-young



MainBusiness construction equipment, industrial vehicles

HeadOfficeAddress 75, Yulgok-ro, Jongno-gu, Seoul, ROK

*For a breakdown of headcount, see pages 274-276 of HCE’s annual report 2018.

CorporateName Hyundai Mipo Dockyard Co., Ltd.


CEO Shin Hyeon-dae



MainBusiness medium-sized ships

HeadOfficeAddress 100, Bangeoginsunhwan-doro, Dong-gu,

Ulsan, ROK

*For a breakdown of headcount, see pages 290-291 of HMD’s annual report 2018.

Part 1. Overview HHIGroupataGlance

12 13

Global Network

Businesses in Korea

Overseas Branches and Corporations

HHI Holdings was incorporated following the equity spin-off of HHI in April 2017, in

the form of an operating holding company engaged in the robotics business. HHI

Holdings is a holding company of the enterprise group of HHI Group, consisting of

27 domestic affiliates, under the Monopoly Regulation and Fair Trade Act of Korea.

Of the 27, 5 including HHI Holdings are listed and the other 22 are non-listed.

KeyChangesin2018

Hyundai Avancis was excluded from the affiliated companies on February 13, 2018 following HHI’s sale of its shares and an application for

exclusion filed with the Fair Trade Commission in December 2017. Yoobong and HEA were newly placed under the wing of HHI Group on

March 1 and June 1, 2018, respectively. Also, Hyundai Robotics changed its corporate name to HHI Holdings as of March 30, 2018.

Americas OverseasBranches

New Jersey, US

Mexico City, Mexico

Atlanta, US

Houston, US

OverseasCorporations

Hyundai Global Service Americas, US

HCE Brazil

HCE Atlanta, US

Hyundai Electric Alabama, US

Hyundai Global Service Colombia

Europe OverseasBranches

London, UK (2 branches)

Moscow, Russia (2 branches)

Athens, Greece (2 branches)

Oslo, Norway

Frankfurt, Germany


HCE Belgium

Hyundai Electric Bulgaria

Hyundai Global Service Netherlands

Hyundai Electric Switzerland R&D Center

Hyundai Electric Hungary Technologies Center

MiddleEast&Africa OverseasBranches

Dubai, UAE (3 branches)

Middle East, SAU

Jebel Ali, UAE


HHI Nigeria

HHI Middle East - EPC

Hyundai Electric Middle East (Saudi Arabia)

China OverseasCorporations

HCE Jiangsu

HCE Changzhou

Hyundai Oilbank Shanghai

Hyundai Electric Yangzhong

HHI Yantai

HCE Beijing

HCE Tai’an

Hyundai Electric Shanghai R&D Center

Asia OverseasBranches

Tokyo, Japan

Bangkok, Thailand

Singapore

Osaka, Japan

Vietnam


Hyundai Global Service Singapore

Hyundai Oilbank Singapore

HCE India

Hyundai Electric India

HCE Indonesia

Hyundai Vinashin Shipyard (HMD - Vietnam)

BusinessType EntityName No.ofEntities

Listed Shipbuilding, etc.

Shipbuilding

Non-financial holding company

Manufacture of machinery for construction and mining

Manufacture of motors, generators and power conversion devices

HHI

HMD

HHI Holdings

HCE

Hyundai Electric

5

Non-listed Shipbuilding

Other engineering services

Manufacture of ship components

Ocean freight shipping

Manufacture and sale of ship engines

Crude oil refining

Manufacture of chemicals and chemical products

Warehouse and transport-related services

Manufacture of petroleum refining products

Crude oil refining and processing

Power generation

Power generation

Power generation

Sports club operations

Manufacture of basic inorganic chemicals

Manufacture of liquid pumps

Business facility maintenance services

Engineering services

Manufacture and sale of photovoltaic cells

Wholesale of primary metal products

Architecture and landscape design services

Manufacture of boilers for power generation

HSHI

Hyundai E&T

Hyundai HYMS

KOMAS

Wartsila-Hyundai Engine

Hyundai Oilbank

Hyundai Cosmo

Hyundai Oil Terminal

Hyundai-Shell Base Oil

Hyundai Chemical

Taebaek Wind Power

Taebaek Guynemi Wind Power

Changjuk Wind Power

HHI Sports

Hyundai OCI

HHI Turbomachinery

HHI MOS

Hyundai Global Service

HHI Green Energy

Yoobong

HEA

HHI Power Systems

22

4 5

Overseas Branches (22 in total)

Overseas Corporations (27 in total)

8

5

5

5

3

6

8

Part 1. Overview GlobalNetwork

14 15

HHIGroupgeneratesvaluewithitsoutstandingresourcesandexpertise.Eachofthesixcategoriesofcapitalinvested

inourbusinessactivitiesplaysakeyroleincreatingeconomic,environmentalandsocialoutputs,whichwedistributeto

stakeholdersviaourbusinessmodelsbasedonthegroup’smanagementphilosophyandvisions.

Value Chain

Input BusinessActivities Output Outcome

Financialcapital

̇ 27 domestic affiliates (5 listed, 22 non-listed)

̇ Financing from shareholders and investors for

business operation

̇ Management information disclosure via

shareholders’ meetings and IR news

Manufacturecapital

̇ HHI’s annual shipbuilding capacity (inclusive of

subsidiaries): 16.77 million GT

For other shipyards’ capacities, see the respective

annual reports.

Intellectualcapital

̇ New technologies to further strengthen

competitiveness in the market, reinforced R&D

capacity

̇ R&D spend in 2018 (ratio to revenue):

KRW 195.3 billion (0.4%)

̇ Key R&D organizations: HHI corporate research

center, etc.

̇ No. of R&D personnel (ratio to total headcount):

1,053 (5%)

Humancapital

̇ Total headcount (male to female): 21,294:1,149

̇ No. of labor union members (membership rate):

12,644 (98%)

Socialrelationscapital

̇ General shareholders’ meeting for enhanced

value of stakeholders and exercise their rights,

after-sales service for better customer satisfaction,

Group Shared Development Committee, social

contribution for local communities, etc.

Environmentalcapital

̇ Certified to ISO 14001

̇ Certified to ISO 50001 (HHI)

̇ Environmentally Friendly policies, such as

GHG reduction and green purchasing

̇ Annual energy consumption: 12,544 TJ

̇ Environmental investments: KRW 43 billion

(cumulative)

Financialcapital

̇ HHI Holdings’ (consolidated) revenue in 2018:

KRW 27.2566 trillion

̇ HHI’s (consolidated) revenue in 2018:

KRW 13.1199 trillion

Manufacturecapital

̇ Key production performance in 2018

109 ships (combined totally of 3 shipyards)

178 two-stroke engines, 475 four-stroke engines

4,363 units of industrial and LCD-handling robots

43,642 units of construction equipment

Intellectualcapital

̇ No. of intellectual property rights applications

made in 2018: 380 patents, 35 practical

applications, 24 design rights

̇ No. of products certified as World Class Product

of Korea: 54

̇ No. of skills managed by Core Skill Transfer

Program in 2018: 49

Humancapital

̇ No. of female staff : 1,138 (5.1% of total workforce)

̇ No. of job expertise program recipients: 4,218

̇ Cumulative no. of staff awarded in the World

Skills Competition: 96

̇ No. of staff on maternity leave: 8

̇ No. of staff on child-care leave: 223

̇ Per capita training hours: 23 hrs.

̇ Cumulative no. of staff qualified with master

craftsmanship: 1,439

Socialrelationscapital

̇ No.1 market share in shipbuilding

̇ No.1 market share in two-stroke engine

manufacturing

Environmentalcapital

̇ GHG mission: 701,558 tCO2e

̇ Waste discharge (general/designated):

73,859 tons / 8,330 tons

̇ Wastewater discharge: 11,305 tons

Shareholders&investors

Promoting shareholders’ value and protecting their

rights

Customers

Delivering products and services that satisfy customer

needs

Businesspartners

Helping partner companies improve their financial

soundness and competitiveness

Employees

Boosting job satisfaction and morale with programs for

learning & development and improved benefits and

working conditions

Localcommittees

Facilitating development of local communities through

social contributions

Industries

Establishing an individual ecosystem for fair

competition

MainProducts&Services

Shipbuilding

Oil tankers, containerships, bulk carriers,

LNG and LPG carriers, petrochemical carriers,

semi-submersible drilling rigs, special purpose

ships

Offshore&IndustrialPlant

Oil and gas production facilities, subsea pipelines

and offshore installations, power plants, process

plants, utility and industrial boilers, process

equipment, specialized equipment

Engine&Machinery

Two-stroke & four-stroke marine engines and

components, propellers, engine power plants

Robotics

Car assembly robots, LCD handling robots

ElectroElectricSystems

Electrical equipment (transformers, GIS), rotating

machinery (motors, generators),

power distribution equipment (switchboards,

low and medium voltage circuit breakers, power

controls)

ConstructionEquipment

Excavators, wheel loaders, forklifts, tow and

transport vehicles, order pickers, skid steer

loaders

GreenEnergy

Solar modules and systems

Refining&Petrochemical

Gasoline, diesel, kerosene, fuel oil, BTX, LPG,

jet fuel, lubricants

Shipbuilding ConstructionEquipment

Shipbuilders HeavyIndustryCompanies

Offshore,Plant,

Refining,Petrochemical,

GreenEnergy,

After-salesServicefor

Ships

Shipowners Constructors

Engine&Machinery

Electro&ElectricSystems

Global Economic Slowdown

ExternalEnvironment

Diversified Industrial Structures

Stronger Trade Protectionism

Rising Demand for Green Technologies

Part 1. Overview ValueChain

16 17

PART 2.

BUSINESS REVIEW

FinancialHighlights 20

HHIHoldings 22

HHI 28

HyundaiElectric 32

HCE 36

HMD 40

Financial Highlights

HHI Holdings HCE

HHI HMD

Hyundai Electric

Revenue13.1199 trillion

OperatingProfit-522.5 billion


OperatingProfit-100.6 billion

TotalAssets24.7299 trillion

NetProfit-453.6 billion


NetProfit-178.9 billion

TotalLiabilities12.7937 trillion

TotalEquity10.5542 trillion










OperatingProfit861.4 billion

Operating

Margin

3.2%





Operating

Margin

6.5%

Operating

Margin

3.0%


NetProfit284 billion

ROA

1.2%



NetProfit141.1 billion

NetProfit120.7 billion

ROA

4.5%

ROA

3.5%

Numberof

Consolidated

Entities

34

Numberof

Consolidated

Entities

11

Numberof

Consolidated

Entities

2

Numberof

Consolidated

Entities

21

Numberof

Consolidated

Entities

8

Consolidated financial statements for the 12 months ended Dec 31, 2018

All amounts are expressed in Korean Won.

Economic Value Distribution

Recipient Meansofdistribution Unit Amount

Shareholders and investors Dividend KRW 1 billion 315

Partner companies Raw material procurement KRW 1 billion 13,609

Local communities Charitable paycheck contribution KRW 1 million 196

Employees Salary and benefits KRW 1 billion 967

Part 2. Business Review FinancialHighlights

20 21

HHI Holdings

CEO Message

Looking back on 2018, I am proud to say at HHI Holdings,

we made our utmost efforts to maximize the competencies

and values of each of our business divisions spun off in April

2017. It was truly an eventful year, a year that will go down in

the company’s history as the foundation for the next phase

of growth, which involved an organizational overhaul. These

efforts are evident in our performance for the year–a combined

revenue of KRW 22.4962 trillion in 2018, with our Oil Refining

business responsible for KRW 21.5036 trillion, Robotics for KRW

579.3 billion and Services for KRW 413.3 billion.

With a Heavy Feed Petrochemical Complex (HPC) being

successfully constructed, our Oil Refining division is now poised

to turn into a comprehensive oil refining and petrochemical

company. Our Robotics division has secured a new growth driver

by teaming up with leading players and establishing a joint

venture robot production factory in China while the Services

business has relentlessly worked on business advancement and

development of convergence service models based on digital

innovation to provide comprehensive service offerings.

In 2019, our commitment will remain solid across all business

divisions to the shared goals of sharpening technological

competencies, expanding global business networks, developing

new business opportunities, and enhancing services as a

competitive advantage. Please continue on this exciting and

rewarding journey with us.

KwonOh-gap, Vice Chairman & CEO

Business Overview While actively carrying out investment activities as the holding company,

HHI Holdings is also engaged in the businesses of robotics, production and

distribution of petroleum products, and marine services for the shipbuilding and

power generation segment.

Robotics

Our Robotics division is engaged in manufacturing and selling industrial robots

and clean robots. Mainly used in manufacturing industries including automotive,

electrical/electronics, and chemical, our industrial robots work on various

automation lines from manufacturing through shipment. Our clean robots are ideal

for handling delicate LCD panels and semiconductor wafers. Having entered the

clean robot sector in 2006, we succeeded in proprietarily developing clean robots

in 2008, mainly supplied to display panel manufacturers. Our most recent activities

include constructing smart factories using our robotic technologies for high-tech

industries. By combining our 35 years of experience and knowledge in robotic

automation with next-generation technologies such as Artificial Intelligence (AI) and

the Internet of Things (IoT) including big data analytics, we are offering the finest

smart factory solutions to our customers.

OilRefining

Hyundai Oilbank, a subsidiary of HHI Holdings, is engaged in the refining crude

oil and producing and selling petroleum products. Capable of processing 650,000

barrels of crude oil per day, Hyundai Oilbank claimed a share of 21.6% in the

domestic market for light crude oil (gasoline, diesel, kerosene, etc.) in 2018 according

to Korea National Oil Corporation’s official statistics. We are diversifying Hyundai

Oilbank’s portfolio through vertical integration of the refinery and petrochemical

businesses, in a way that creates synergies across different areas. Its subsidiaries

have competitive advantages in their respective sub-sectors. Hyundai Chemical and

Hyundai Cosmo produce BTX (mixtures of benzene, toluene, and xylene) such as

mixed xylene (MX) and para-xylene (PX) while Hyundai-shell Base Oil produces lube

base oil and Hyundai OCI Carbon manufactures carbon black. Hyundai Oil Terminal is

engaged in the oil terminal business. As such, while enhancing the overall efficiency

of the existing refinery business, we have also laid a stable foundation for continued

business growth.

Services

Hyundai Global Service, a subsidiary of HHI Holdings, offers various free and paid

services tailored to the needs of shipbuilding and power generation sites. Its main

business areas include periodic maintenance of critical equipment of ships, parts

supply and replacement, technical support for repairs, engineering, procurement,

installation, and commissioning (EPIC) services, parts and equipment supply to

engine power plants, operation and maintenance (O&M), warranty repairs for key

parts or ships delivered, and fuel supply to ships. Operating a total of eight business

establishments worldwide, including subsidiaries, branches, and liaison offices, we

plan on the continued expansion of the business network for enhanced customer

Part 2. Business Review HHIHoldings

22 23

Financial Performance Stand-alone HHIHoldings HyundaiOilbank HyundaiGlobalService

Revenue (KRW 1 million) 579,300 21,503,600 413,300

Operating Profit (KRW 1 million) 337,800 661,000 76,500

Operating Margin (%) 58.3 3.07 18.5

Stand-alone Robotics OilRefining Services

Industrial

Robots

LCDRobots Others CrudeOil

Refining

ShipParts,

etc.

Other

Services

Revenue by

Category

(KRW 1 million)

158,770 91,536 16,368 18,518,848 352,505 60,784

Share (%) 59.6 34.3 6.1 100 85.3 14.7

services. We will explore new businesses linking platforms and services to pioneer

the next phase of cutting-edge digital innovation as part of our plan to expand

our next-generation businesses in earnest by utilizing the Digital Innovation Center

established in the second half of 2018.

Robotics

2018 Business Performance

2019 Outlook and Targets

Growth Strategy

Our Robotics division posted annual sales revenue of KRW 266.7 billion, shipping

4,200 robots for industrial use. The total revenue stood at KRW 579.3 billion (stand-

alone basis), which includes dividend income received as the holding company.

China’s robot market, which accounts for about 40% of the global demands,

continues to grow. Against this backdrop, LCD and OLED industries are expected

to invest more in clean robots. As for the Korean market, on the other hand, a

slump in the auto industry and oversupply in the display market are expected to

combine to drive down such investments. That said, a sharp increase in the interest

and demand for robot-based automation systems is expected in the wake of the

recently introduced 52-hour workweek and minimum wage increase in Korea.

Considering all this, for 2019, HHI Holdings has set its Robotics division’s targets for

orders and sales at USD 400 million and KRW 360 billion, respectively, with a goal to

achieve total revenue of KRW 660 billion inclusive of dividend income.

Improving the competitiveness of our flagship products while expanding our lineups

for various industries and developing new products, we will actively respond to

the rapidly-growing Chinese robot market. Also, taking a step further from selling

individual robots, we will advance into the smart factory market which encompasses

production line construction, quality control and production management systems.

1.Improvingthecompetitiveedgeofflagshipproductsandcost

competitivenessthroughdesigninnovation

̇ Establishing a quality management system from planning through mass

production

̇ Using domestically-manufactured, diversified key components

2.Developingnewproductsandlineups

̇ Developing lineups tailored to electronics, machining, food and other

industries

̇ Developing collaborative robots and service robots

Oil Refining



In 2018, Hyundai Oilbank recorded KRW 21.5036 trillion in sales. Operating profit was

at KRW 661 billion, a decrease from the previous year due to losses on write-down

of inventory affected by the plunge in oil prices in the fourth quarter. Despite that,

we continue to boast an operating margin that is larger than that of any peer in the

oil refining sector, thanks to the diversification of our crude oil varieties that now

include extra-heavy oil, which makes much economic sense, and enhanced process

efficiency through energy savings. Hyundai Oilbank also achieved an advancement

ratio* of 40.6%, which is the largest level in the industry, by newly establishing a

Solvent De-Asphalting (SDA) process and expanding the existing Delayed Cocker

Unit (DCU) process thereby securing a stable profit model.

* Advancement ratio: The ratio of the advanced processing capacity to the conventional

refining capacity. The higher the ratio, the more capable a refinery is to produce large

amounts of profitable products such as gasoline, out of low-cost heavy oil.

Globally, the year 2019 is set to see an expansion of refining facilities that will

translate into an additional capacity of 1.4 million barrels per day in aggregate.

Also, the IMO regulations on limiting sulphur content of bunker fuel to a maximum

of 0.5%, scheduled to enter into force from January 2020, is expected to drive up

demand for low sulfur diesel and bunker oil in the second half of 2019, which will

positively impact our performance. At Hyundai Oilbank, unwavering efforts to

enhance profitability are underway, which include improving productivity through

reduced energy consumption and streamlined processes and enhancing sales

competitiveness through diversified overseas sales outlets and upgraded quality.

Also planned for 2019 is the construction of an MX plant with an annual capacity of

200,000 tons for Hyundai Chemical and a carbon black plant with an annual capacity

of 50,000 tons for Hyundai OCI.


24 25

Robotics Services

Oil Refining

Growth Strategy Hyundai Oilbank will continue its endeavors to enhance competitiveness in both the

oil refining and non-refining sectors. To set us apart from our competitors and in

active response to the expected surge in demand for low sulfur diesel and bunker oil

due to IMO’s tightened regulations, we will increase the share of advanced process

in our total refining capacity and expand petrochemical production facilities. Also, an

HPC project is underway with a view to advancing into the Naphtha Cracking Center

(NCC) business. We plan on securing unparalleled cost competitiveness by using

desulfurized heavy oil and expect to gain a competitive edge over our rivals in the

NCC business thanks to synergies between our refinery and petrochemical divisions.

By successfully completing the ongoing HPC project, we expect to see our non-

refining sector claim at least 50% of our combined operating profit by 2022.

1.Oilrefiningsector

̇ Increasing the advancement

ratio

̇ Expanding petrochemical

production facilities

2.Non-refiningsector

̇ Expanding HPC projects

̇ Entering the NCC business

Services



Since before the spin-off in December 2016 into Hyundai Global Service as a

separate company, this division has seen a continued increase in annual revenue,

recording around KRW 100 billion in 2016, KRW 238.2 billion in 2017 and KRW 413.3

billion in 2018. Hyundai Global Service posted an operating margin of approximately

18.5% in 2018, ensuring a stable revenue base, and is expected to see continued

improvement of profitability in the future. In particular, we are receiving a growing

amount of orders for installation/refurbishment of gas scrubbers and ballast water

treatment systems (BWTS)* due to a widening price gap between high sulfur fuel

oil and low sulfur oil. In 2018, we secured an aggregate order amount of USD 440

million for eco-friendly construction projects.

* Ballast Water Treatment Systems (BWTS): Facilities designed to remove and destroy biological

organisms contained in the ballast water held in tanks and cargo holds of ships to increase

stability and maneuverability during transit.

The global ship maintenance market is expected to steadily grow at an annual rate

of about KRW 20 trillion, and the eco-friendly refurbishment market is expected to

reach up to KRW 10 trillion a year. For 2019, we have set an order target of USD

940 million and a revenue target of KRW 823.9 billion. With a view to achieving an

annual revenue of KRW 2 trillion or over by 2022, our efforts will be focused on

making continuous investments, expanding human resources, and securing new

business opportunities.

Growth Strategy To take a bold leap forward to turn into a global top-tier total service provider in

the area of ship and engine power generation, Hyundai Global Service is making

continued endeavors to advance its existing service business and create a new

convergence service model based on digital innovation. More efforts are underway

to expand overseas networks and areas of service delivery, with the ultimate goal of

maximizing customer satisfaction.

1.Advancingtheexistingservicebusiness

2.Creatinganewconvergenceservicemodelbasedondigital

innovation

3.Expandingoverseasnetworksandareasofservicedelivery


26 27

HHI Business Overview


Shipbuilding

With over 40 years of experience and know-how in building ships, diverse product

lines, and strong business relationships with world-class shipping companies,

we have long maintained a reputation as an unparalleled leader in this industry.

Not only do we boast advanced technologies in the fields of eco-friendly ships

and smart ships, but we also have secured price competitiveness by integrating

the function of sales and purchasing across all three shipbuilders (HHI, HMD and

Hyundai Samho Heavy Industries).

Engines

We manufacture large/mid-sized engines for ships and mid-sized engines for

power generation, with a share of 36% in the global market for large engines and

28% for mid-sized engines, which combine to place us in first place in global market

dominance. We are the only Korean engine maker with its own original technology

to manufacture mid-sized engines, and plan to expand our eco-friendly equipment

business such as gas engines, in active response to IMO’s tightened environmental

regulations.

Offshore

In a seamless process, we design, purchase, manufacture, transport, install and test-

run marine facilities used for developing and producing offshore oil fields. Equipped

with the best production facilities and technologies, including a 10,000-ton floating

crane and a 1 million-ton construction dock, we have successfully completed to

date some 170 construction projects around the world.

HHI secured orders for a total of 163 ships (approx. USD 14 billion, consolidated

basis) in 2018, and 313 ships were either on order or under construction (approx.

USD 26 billion) as of the year-end, a volume large enough to keep us busy for

over two years. Our low debt-to-equity (D/E) ratio and sound overall financial

structure, single mixed refrigerant (SMR) LNG re-liquefaction testing facility having

been successfully built, and improved price competitiveness thanks to a solid

management improvement plan, etc. have all combined to set us further apart from

our competitors in winning shipbuilding orders. As a result, for the two consecutive

years from 2017 to 2018, we were ranked first place in terms of dominance in the

global market for LNG carriers where order volumes are on a steep rise, claiming a

share of about 40% each year. This has once again demonstrated our excellence in

technology and competitiveness in the market for high value-added vessels.

CEO Message

The year 2018 witnessed a variety of efforts at HHI to enhance business competencies. We designed and implemented

a new organizational structure to strengthen our position in the market for special-purpose ships and eco-friendly

equipment. We also commenced on the construction of our first next-generation smart ship in preparation for the

Fourth Industrial Revolution era while taking a first step towards a smart yard environment by constructing a smart

factory with key ICT technologies.

Although the global shipbuilding market still has a long way to go before full recovery, we successfully met our annual

order targets. We are particularly proud of how our technological excellence helped us maintain our competitive

edge in the market for high value-added ships and secure orders for a total of 12 LNG carriers in 2018, an area where

demand is showing signs of recovery.

In this promising year of 2019, under the motto of “Rise Again to Reclaim the Title of World’s No. 1” we will make

vigorous efforts for a safe workplace, cost-cutting innovation, enhanced technology and quality, and a corporate climate

of understanding and harmony. Thank you for your trust and confidence in HHI.

HanYoung-seuk&KaSam-hyun,

Co-Presidents & CEOs

Part 2. Business Review HHI

28 29

2019 Outlook and Targets The number of orders for LNG carriers is expected to be on a steady rise thanks to

the increasing global demand for LNG, particularly from emerging industrial countries

such as India and China, while the replacement demand for container carriers and

crude oil carriers will likely accelerate due to the tightening IMO environmental

regulations such as sulfur oxides (SOx) emissions control. For 2019, we have set an

order target of USD 19.6 billion (consolidated basis), up about 20% from the previous

year’s performance, encouraged by our distinctive competitiveness in technology

and sales competencies in the market for environmentally friendly ships such as LNG

carriers. Our sales, which had been on the decline until 2018, is expected to turn

around to an upward spiral from 2019 driven by the recovery in the volume of orders

received from 2017. HHI’s sales target for 2019 is set at KRW 15 trillion (consolidated

basis), a 13% increase from the previous year.

Core Competencies Globalshipbuildingindustry’sfinesttechnologyandinfrastructure

̇ World’s largest accumulative newbuilding volume

̇ A variety of world-class products registered

̇ World’s first to set a milestone of 2,000 ships delivered in 2015

̇ World’s first to deliver an LNG-FSRU (floating storage regasification units) in 2014

̇ World’s first to reach 100 million GT in 2012

̇ World’s first to use the on-ground shipbuilding method in 2004

̇ World’s first to build a SMR LNG re-liquefaction testing facility

̇ Korea’s first to deliver an LNG carrier

̇ Korea’s first to deliver an eco-friendly LNG carrier powered by dual-fuel engines

UnitedEffortstoFurtherStrengthenAbilitytoWinNewOrders

̇ IntegratedClientInteractions

All Hyundai shipyards acting as a single, integrated channel of communication in

interacting with customers with multiple fleets ranging from small/mid-sized to

large-sized ships

̇ CostCompetitiveness

Comparing designs of overlapping product models across shipyards for additional

improvements in specifications, including fuel efficiency, and for cost savings

Growth Strategy 1.Short-termstrategy(by2019)

̇ Quality improvement through a well-established quality management

system

̇ Cost reduction through strategic purchasing

̇ Productivity enhancement through ICT* convergence

* Information and Communication Technology

2.Mid-tolong-termstrategy(by2022)

̇ Leading the eco-friendly, high-efficiency ship market with the world’s

finest technologies

̇ Making inroads into future growth markets through persistent

technology development efforts

̇ Establishing a technology-oriented management system

̇ Developing a next-generation ICT convergence business model

̇ Shaping HHI into a premium brand name

̇ Engaging in a wider variety of joint projects with international partners

Consolidated 2017 2018

Revenue (KRW 1 million) 15,468,836 13,119,891

Operating Profit (KRW 1 million) 14,646 (522,520)

Operating Margin (%) 0.1 (4.0)

Consolidated Shipbuilding Offshore

&Plant

Engine&

Machinery

Green

Energy

Construction

Equipment

Others

Revenue by Category

(KRW 1 million)

9,633,638 2,266,464 574,529 347,476 78,312 219,472

Share (%) 73.43 17.27 4.38 2.65 0.60 1.67

Financial Performance ̇OrganizationalEfficiency

Sales and marketing as a shared services model and periodic personnel rotations

across shipyards to deepen knowledge and understanding of the group’s entire

array of product models

Part 2. Business Review HHI

30 31

Hyundai Electric Business Overview


Hyundai Electric is engaged in infrastructure businesses, including equipment and

solutions for generating and supplying power. Our clientele includes both state-

run and private power generation and power transmission companies and EPC

contractors.

PowerSolution

Hyundai Electric supplies a wide variety of power systems for electrical grids such

as power generation and transmission systems. Key products include ultra-high

voltage transformers and ultra-high voltage circuit breakers.

IndustrialSolution

Our Industrial Solution business provides rotating machinery, power distribution

equipment and control systems for chemical plants and general industries. Key

products include switchboards, distribution transformers, low and medium voltage

circuit breakers, motors, inverters, generators and industrial control systems.

MarineSolution

Our Marine Solution business provides electrical parts for commercial ships,

warships and offshore plants. Key products include marine switchboards, distribution

transformers, and rotators.

EnergySolution

To support efficient electrical energy consumption, our Energy Solution business

designs, procures and builds integrated systems that effectively control all stages

from electricity generation to energy management. Key products and services

include energy storage systems (ESS), building energy management systems (BEMS),

factory energy management systems (FEMS), and microgrid solutions.

The year 2018 saw a continued slump in orders on global basis, especially due

to the delayed recovery of infrastructure investments in the Middle East. Against

this backdrop, the results we posted in 2018 were not exactly glowing-on a

consolidated basis, our sales revenue recorded KRW 1.9404 trillion and the total

order receipts amounted to USD 1.718 billion. That said, such deeply disappointing

market conditions did not stop us from making proactive investments to sharpen

our competitiveness in the run-up to a full recovery of the market, which included

opening our Reliability Assessment Center and building a smart factory environment

for our transformer plant. We also focused on cost structure improvement, which

included optimizing manpower and accounting for impairment of assets to help

return our performance as quickly as possible to a positive growth path.

CEO Message

Since our initial establishment in 1977 as HHI’s electrical and

electronic Systems Division, we have consistently taken the lead

in driving the nation’s technological advancement, successfully

completing numerous projects at home and abroad over

the past 40 years.

In 2018, Hyundai Electric’s efforts were particularly focused

towards providing the best products, solutions and service

offerings that can boost productivity and efficiency of our

customers’ businesses, which included expanding our Hungary

Technologies Center (H-TEC) and opening our reliability

assessment center. Much to our regret, however, the year did not

live up to our expectations or those of our stakeholders from a

financial performance perspective.

Looking to turn the tide as quickly as possible and to lay the

foundation for a quantum leap forward, we will place great

stress on increasing customer satisfaction through quality

innovation, improving product competitiveness, enhancing sales

competencies and exploring new markets, and creating a safe

and rewarding workplace as we go forward. We thank you for

your cordial support.

JungMyung-rim, President & CEO

Part 2. Business Review HyundaiElectric

32 33

2019 Outlook and Targets Infrastructure investments in the Middle East market are expected to gradually pick

up again from 2019. Also, the market for marine equipment and energy solutions is

expected to continue to grow. Considering this, we have set our sales target at KRW

2.0783 trillion and order target at USD 1.998 billion for 2019. We will spare no efforts

to meet these goals by enhancing customer satisfaction through quality innovation,

increasing R&D investments for stronger product competitiveness, and exploring

new markets through enhanced sales capabilities.

Growth Strategy Based on our technology and know-how built over four decades, we aim to evolve

into a total energy solution provider that delivers quality electric products and

advanced energy solutions, by expanding R&D investments and our global network.

1.Positioningflagshipproductsinahigh-endsegment

Strengthening product competitiveness by establishing smart factory

environments and delivering premium customer services that converge

with new ICT businesses

2.StrengtheningR&Dcompetitiveness

Establishing a climate of technology-oriented management, securing

talents at home and abroad, and improving quality through reliability

assessment center

3.Buildingupaglobalgovernanceandmanagementsystem

Securing production hubs by market and diversifying strategies by region

4.ExpandingICTenergysolutionbusiness

Fostering the rapidly growing ICT energy solution business, centered

around renewable energy generation and energy management systems,

as a new growth engine to proactively respond to the transforming

energy markets

5.Diversifyingproductlineupsformassproduction

Strengthening the product portfolio with new products and widening our

presence in the global market

Consolidated 2017* 2018


Operating Profit (KRW 1 million) 62,419 (100,581)

Operating Margin (%) 4.3 -

Consolidated ElectricalandElectronicEquipment

Revenue by Category (KRW 1 million) 1,940,412

Share (%) 100

Financial Performance

*From April 1 to December 31, 2017

Part 2. Business Review HyundaiElectric

34 35

HCE Business Overview


HCE is engaged in the business of manufacturing and selling construction

equipment such as excavators and wheel loaders, and industrial vehicles such as

forklifts, tows and transport vehicles. HCE has maintained a leading position in major

construction equipment markets across the globe, establishing overseas production

bases in emerging countries that have been on a rapid growth path since the mid-

2000s, including India and Brazil.

ConstructionEquipment

We manufacture and sell construction equipment broadly used for large-scale

social infrastructure construction such as roads and buildings and for excavating,

transporting of materials and crushing across a wide range of areas, ranging from

mining and agriculture to forestry. HCE’s flagship products include medium- and

large-sized excavators and wheel loaders.

IndustrialVehicles

We also manufacture and sell vehicles needed in various industries, including

logistics, distribution, shipbuilding, steel, automotive, and chemical. Examples of

major products are forklifts, tows and transport vehicles.

In 2018, HCE managed to deliver positive outcomes in terms of not only operating

profits but securing future growth engines, amidst unfavorable business conditions

both at home and abroad: protectionism on the rise as demonstrated in the trade

dispute between China and the US, currency depreciation of emerging countries,

and a slowdown in Korea’s economic growth. Specifically, the company continued to

put a focus on building a foundation for sustainable growth in the future, drastically

increasing our production capacity so as to expand business in China and India

and rolling out “Global Integrated Information System,” our enterprise resource

management system that integrates the respective systems of HQ and overseas

offices for mass production of construction equipment. In addition, in an effort to lay

the groundwork for expanding our business into the Southeast Asian market, we

opened our Vietnamese office and secured around 100 dealers across Southeast

Asia.

Consolidated 2017* 2018


Operating Profit (KRW 1 million) 95,233 208,732

Operating Margin (%) 5.0 　6.5


*From April 1 to December 31, 2017

Consolidated ConstructionEquipment IndustrialVehicles Others

Revenue by Category (KRW 1 million) 2,530,545 465,495 237,895

Share (%) 78.2 14.4 7.4

CEO Message

From a humble beginning in 1985 as HHI’s Heavy Machines

Division, we have grown into a company with a yearly production

capacity of 50,000 units of construction equipment and industrial

vehicles. HCE has actively expanded its sales channel across the

globe with its 540 dealer networks in 140 countries, as well as our

overseas subsidiaries.

We are currently focusing on forging a global R&D cooperation

network mainly through securing talented researchers and

developers and establishing R&D centers in Europe and North

America.

In 2019, we have set an audacious target to achieve global sales

of KRW 3,6294 trillion to continue our business momentum.

To this end, we seek to improve customer loyalty through

technology and quality innovations, strengthen sales capability

with the timely acquisition of accurate market data, and ensure

legal and regulatory compliance with rigorous risk management.

Thank you for your confidence in HCE’s future.

KongKi-young, President & CEO

Part 2. Business Review HCE

36 37

2019 Outlook and Targets HCE has set its revenue goal for 2019 at KRW 3.6294 trillion. The company plans

to boost its competitiveness and specialty in each of our business categories

despite the downward trend expected in the global economy. We expect the

Chinese excavator market, the largest in the world, to expand from around 180,000

units in 2018 to up to 200,000 units in 2019, primarily backed up by the Chinese

government’s economic stimulus package. In the Chinese market, we have set our

sales target at 9,000 units in 2019, up from our performance (7,000 units) in 2018.

The Indian market is also projecting growth in demand from 24,000 units in 2018

to 27,000 units in 2019, as a result of continued economic growth investments

in infrastructure and manufacturing. HCE plans to beef up its facilities in India to

achieve an annual production capacity of 10,000 units in 2019, thereby solidifying

our position as the No. 2 excavator provider in the Indian market, and further

increase cost competitiveness by procuring parts locally.

Growth Strategy In 2019, we will commit an undivided effort to the three growth strategies of

technology and quality innovations, timely acquisition of accurate market data, and

risk management, with a view to improving product quality and competitiveness,

sales capability, and customer loyalty.

1.Technologyandqualityinnovations

̇ Creating a global R&D cooperation network by opening up R&D centers

sequentially in Europe and North America

̇ Realizing reliable quality for global production bases by expediting the

establishment of reliability assessment center

2.Timelyacquisitionofaccuratemarketdata

Identifying customer needs and wants based on a highly sophisticated

sales strategy

3.Riskmanagement

Laying the groundwork for sustained growth with rigorous risk

management and profitability-driven policies

Part 2. Business Review HCE

38 39

HMD Business Overview


HMD repaired and refurbished around 8,500 ships for 20 years since its founding in

1975. It entered the newbuilding industry in the mid-1990s and has since delivered

more than 1,000 vessels, snatching the largest market share in the global mid-sized

shipbuilding field. The company headquarters is located in Ulsan covering a

1 million square meter area, and there are four plants (Yongyeon, Onsan, Mohwa

and Daebul) where it builds premium quality ships that meet client expectations

and needs, based on various state-of-the-art automated facilities, including three

400,000-ton docks, one 350,000-ton docks, a 2.9-kilometer quay, and 20 jib cranes.

Product&ChemicalTankers

A product & chemical tanker (PC tanker) is a vessel designed to transport various

oil products, bio oil, and liquid chemicals. Having a similar structure to oil tankers,

PC tankers have a series of separate cargo tanks coated with specialized coatings

and are connected to complicated piping, allowing the vessel to load and transport

various types of liquid products with safety hazards at the same time.

Containerships

The small- and mid-sized containerships HMD builds are known for the best fuel

efficiency, high quality and low maintenance cost. In particular, the linear designs

and layouts are optimized, and have highly been acclaimed by clients.

GasCarriers

In addition to various gas carriers for LPG, LEG and LNG transport, we build LNG

bunkering vessels that can refuel LNG at sea.

Although our sales had been in decline against the backdrop of the decreasing

number of orders and the sluggish industry until 2016, our operating profit turned

back into the black in 2018, thanks to our continued efforts to revamp product

designs and processes, eliminate unnecessary costs, and focus on high value-added

models. Our market dominance has been all the more strengthened as some of our

competitors went through restructuring during the recession. As a result, in 2018,

our market share in the PC market (medium range, M/R) stood at 59%, with orders

received during the year valued at USD 2.5 billion.

Consolidated 2017 2018


Operating Profit (KRW 1 million) 107,949 70,896

Operating Margin (%) 4.4 3.0


Consolidated Ship

Revenue by Category (KRW 1 million) 2,403,016

Share (%) 100

CEO Message

There is a growing level of business uncertainty as the US-China

trade war, a fragile Europe, and concerns over a potential

economic crisis in emerging economies are combining to slow

down the expansion of global economic growth.

In an effort to navigate such uncertainty in the business

environment, our business planning for the year 2019 is focused

on creating new business value and solidifying the basis of future

growth.

HMD’s business plan lays out our shipbuilding goal of 60 units (in

terms of keel laying) or 58 units (in terms of delivery) in 2019, up

by 14 and 17 from our 2018 performance, respectively. We have

also set our annual sales target at KRW 3 trillion which represents

a 25% increase year on year. This effort will enable us not only to

improve the current business operations but also to drive future

growth and take a bold leap forward.

Guided by the motto for 2019, “A Leap Beyond Limits,” we will

work towards our solid management direction: adhering to our

“Safety First” principle, reinforcing competitiveness in terms of

quality and technology, identifying future growth engines, and

promoting a culture of mutual trust and cooperation.

Please join with us as we continue moving forward.

ShinHyun-dai, President & CEO

Part 2. Business Review HMD

40 41

2019 Outlook and Targets The volume of global newbuilding orders dropped to the lowest level in 2016 and

started rebounding in 2017. We expect the current favorable trend to continue

in 2019, with potential new orders from customers to replace their existing ships

to meet increasingly stringent environmental regulations. We have set our order

target this year at USD 3.5 billion, a 17% increase year on year. Sales are expected to

reach KRW 3 trillion, up 27% from the previous year, thanks to the increasing trend

of orders since 2017.

Growth Strategy We aim to achieve KRW 4.5 trillion in sales and 10% in operating margin by 2021

based on three growth strategies: maintaining competitiveness in flagship models;

increasing the market share of strategic models; and reinforcing capabilities for

sustainable growth.

1.Maintainingcompetitivenessofflagshipmodels

2.Expandingthemarketshareofstrategicmodels

PCtankers

̇ Building eco-friendly, cost/

quality-competitive PC tankers

̇ Maintain the current share

in the PC tanker market by

delivering optimized standard

carriers

Gascarriers

̇ Improving competitiveness of

small/mid-sized LPG and LNG

carriers

̇ Achieving domestic production

of C-type tanks

̇ Securing in-house technology

for cargo handling systems

RO-RO,PCTC

̇ Increasing car deck precision of

PCTC

̇ Making blocks larger and more

specialized

̇ Enhancing the competitiveness

of RO-RO ships

Containerships

̇ Defining and developing a

standard container model

̇ Improving cost competitiveness

̇ Improving performance and

energy efficiency design index

(EEDI)

EnvironmentallyFriendly

conversionofvessels

̇ Mounting SCR system to reduce

NOx emissions

̇ Installing LNG fuel supply system

Small-sizedLNGcarrier

̇ Developing small LNG carrier

models

̇ Securing technology for floating

storage regasification units

(FSRU)

̇ Obtaining LNG cargo

containment system technology

RO-PAX

̇ Selecting RO-PAX strategic

models

̇ Identifying domestic interior

vendors

̇ Securing technology for building

small cruise ships

Multi-purposespecialcarrier

̇ Acquiring capabilities to build

high value-added special carriers

̇ Entering the shuttle tanker

market

̇ Securing in-house capability to

design OSV/PSV

3.Reinforcingcapabilitiesforsustainablegrowth

HRdevelopment

̇ Nurturing specialists in all job

lines

̇ Achieving a stable labor-

management relations and

obtaining future talents

Expandingprofitablebusinesses

̇ Operating additional docks and

quays

̇ Increasing revenue and profit

from overseas business (HVS)

̇ Securing additional production

factories

Securingtop-notchtechnology

anddesigncapabilities

̇ Adopting environmentally

friendly shipbuilding

technologies

̇ Smart connected ships

̇ Developing capabilities to design

and construct special-purpose

ships

Creatinganoptimizedsmart

workplace

̇ Streamlining the production

process

̇ Building an ICT-based database

̇ Implementing an integrated

safety system

Part 2. Business Review HMD

42 43

PART 3.

SUSTAINABILITY PERFORMANCE

SustainableManagementSystem 46

StrategicDirectionandPerformanceIndicators 48

UNSDGs 50

MaterialityAssessment 54

EnhancingCorporateValueThroughContinualGrowth 56

UpholdingFairandTransparentBusinessPractices 74

PursuingSafeandEnvironmentallyFriendly 86

BusinessPractices

PromotingStrongLaborRelationsBuilton 104

MutualRespectandTrust

DemonstratingOurCommitmenttoGlobal 122

CorporateCitizenship

Sustainable Management System HHIGroupactivelypursuescorporatevalueenhancementthroughcontinualgrowth.Themissionofaglobalcorporate

citizenistovaluetheco-prosperityofmankindandtofulfillitscorporatesocialresponsibilitiesandroles.HHIGroup

createssharedvaluesinawiderangeofareas,includingbutnotlimitedtoeconomy,environmentandsociety,based

onitswell-organizedsustainablemanagementactivities.Underthethreemajoroperationalpolicies,theGroupplans

andperformsvariousactivitiesforeachcategoryandcontinuouslydiscloseskeyachievementstostakeholders.HHI

Groupisleadingtheefforttomakeabettertomorrowbyactivelyrespondingtotheneedsofoursociety,andbymaking

improvementsthroughperformanceanalysisandstrengtheningitsareasofexcellence.

Sustainable Management

System and Operational

Policy

Communication with

Stakeholders

HHI Group operates an efficient and sustainable management system by

assigning professionals and departments for each sustainability initiative. Relevant

departments perform comprehensive management for planning activities,

execution, assessment and company-wide strategic planning. Collected information

is utilized to plan and execute new sustainability initiatives and also used for

integrated reporting.

Customers, shareholders and investors, business partners, local communities, industries,

and our executives and employees are the key stakeholders that influence and are

influenced by HHI Group, across all management activities. HHI Group operates various

communication channels for stakeholders’ participation in sustainable management.

TransparentDisclosure

˙Communication channels

customized to different

groups of stakeholders

˙Transparent disclosure to

stakeholders on

sustainable management

SystematicPerformance

Management

˙Activities and performance

management by

classifying areas based on

the five management

philosophies

ContinuousImprovement

˙Multidimensional

analysis of sustainable

management activities

and performance

˙Overcoming weaknesses

and enhancing strengths

SustainableManagementOperationalPolicy

DirectionofApproach

̇ Offering products and services as well

as receiving feedback based on regular

communication

̇ Endeavoring to improve customer satisfaction

KeyCommunicationChannels

̇ Warranty & Lifetime Service

̇ Feedback Service

̇ Smart Service

IssuesofInterest

̇ Improving customer satisfaction

̇ Excellent quality

̇ Safe use of products

DirectionofApproach

̇ Laying a foundation for co-prosperity

̇ Providing training programs and consulting

services for subcontractors and other

business partners


̇ Group shared development committee

̇ Shared growth expansion council

̇ Conferences and New Year’s party for

subcontractors and business partners

IssuesofInterest

̇ Pursuit of co-prosperity

̇ Fair transactions

̇ Long-term partnership

DirectionofApproach

̇ Strengthening competitive

edge through fair competition

̇ Benchmarking, sharing

information and forming

partnerships to resolve

common issues


̇ Korea Offshore & Shipbuilding

Association and others of

similar nature

̇ Working group meetings of

the same industries

IssuesofInterest

̇ Creating an industrial ecosystem

̇ Strengthening competitiveness

DirectionofApproach

̇ Enhancing transparency of

management information

̇ Building a consensus on vision

and new growth engines


̇ Shareholders’ meeting

̇ IR news

̇ Annual report

̇ IR meeting

̇ Teleconference

IssuesofInterest

̇ Corporate value increase

̇ Protection of shareholder

interests

̇ Stable growth

̇ Transparent disclosure of

information

DirectionofApproach

̇ Contributing to growth and development of

local communities through various activities


̇ ‘Charitable Bazaar with Love’

̇ ‘Kimchi Making with Love’

̇ Volunteer activities by executives

and employees

IssuesofInterest

̇ Revitalization of the local economy

̇ Local environmental protection

̇ Social contribution activities

DirectionofApproach

̇ Inducing interest and participation in

sustainable management through

active internal communication

̇ Striving to build a cooperative

labor-management relationship


̇ Collective bargaining and wage negotiations

̇ Labor-management council

̇ Industrial health & safety committee

̇ HHI Group webzine

IssuesofInterest

̇ Safe working environment

̇ Career development

̇ Benefits

̇ Respecting diversity

LocalCommunities

Executives&Employees

Industries Shareholders&Investors

Customers

BusinessPartners

Part 3. Sustainability Performance SustainableManagementSystem

46 47

Strategic Direction

and Performance Indicators

Direction and Strategy Integrated Sustainability Performance Indicators across the Group

Philosophy Direction Strategy Stakeholders Category Indicator Unit HHIHoldings HHI HyundaiElectric HCE HMD Total

EnhancingCorporate

Valuethrough

ContinualGrowth

̇ Securing core capability to drive

future growth

̇ Implementing flexible business management

& global business system

̇ R&D expenses, no. of researchers

̇ Internal evaluation of Quality Management

System

̇ No. of participants in technology

empowerment programs

Customers

Executives & employees

Business partners

Shareholders

R&D R&D expenses KRW 100 million 88 785 578 519 Included in HHI 1,970

R&D personnel Persons 78 457 240 278 Included in HHI 1,053

Quality

management

Internal evaluation of

Quality Management System

Cases 12 33 55 12 48 160

Technology

empowerment

Personnel who completed

manufacturing engineering

training course

Persons 5,062 N/A N/A N/A 1,104 6,166

UpholdingFairand

Transparent

BusinessPractices

̇ Supporting open and fair competition

̇ Fostering a climate for fair and transparent

transactions

̇ No. of participants in compliance and

ethics management training programs

̇ Shared growth fund size, early payment

for deliveries

All Compliance

management

Risk assessment function for

transactions in subcontracting

Terms (Combined) 6 6

Businessethics Personnel taking ethics

management training course

Persons (Combined) 20,232 20,232

Management

transparency

enhancements

Attendance rate of outside

directors

% 100 93.2 97.8 96.3 94.4 -

PursuingSafeand

Environmentally

FriendlyBusiness

Practices

̇ Creating a pleasant and safe work

environment

̇ Environmentally friendly production activities

and technology development

̇ Reduction of energy consumption and

GHG emissions, reduction of generating

air/water pollutants and industrial waste

̇ Immediate rewards for exemplary safety

practices


Local communities

Safety

management

Accident rate % 0.43 0.25 0.29 0.29 0.26 -

Amount of immediate rewards

for exemplary safety practices

KRW 1,000 - 239,000 12,525 78,707 183,898 514,130

Environment

management

GHG emissions tCO2e 1,965 493,885 37,543 21,784 146,381 701,558

PromotingStrong

LaborRelations

BuiltonMutual

RespectandTrust

̇ Fostering a vibrant organizational culture

based on trust and participation

̇ Performing all duties and responsibilities to

enhance corporate competitiveness

̇ No. of labor relations training sessions

conducted and participants

̇ No. of personnel who completed talent

nurturing course


Business partners

LaborRelations

advancement

Union membership rate % 75.7 98.5 94.8 96.3 100 -

Learning&

devolopment

Participants in training Persons 443 16,802 402 680 15,228 33,555

Amount of investment in training KRW 10 million 16 343 2 6 126 493

Sharedgrowth Amount of early payment

for deliveries

KRW 100 million 97 1,965 542 420 1,350 4,374

DemonstratingOur

Commitmentto

GlobalCorporate

Citizenship

̇ Contributing to national development

through faithful tax payment and

job creation

̇ Contributing to human prosperity through

efforts to create and deliver values

̇ Amount of paycheck contribution

̇ Types and no. of times of major cultural

and artistic performances/exhibitions

conducted

Customer


Local communities

Social

contribution

Amount of paycheck

contribution

KRW 1,000 2,055 117,156 34,720 12,000 30,007 195,938

Arts&culture Viewers watching performances

at Hyundai Arts Center

Persons (Combined) 256,152 256,152

Part 3. Sustainability Performance StrategicDirectionandPerformanceIndicators

48 49

UN SDGsTheUNSustainableDevelopmentGoals(SDGs)setforthauniversalcalltoactionfortheperiodfrom2016to2030,to

achievesustainabledevelopmentonaglobalscale.Achievingthegoalsrequireseffortsandcooperationthroughoutour

society,andtheroleofacompanyinthiscontextistocreateagrowthengineandinnovationsforeconomicdevelopment

andjobcreation.ByaligningitsmanagementdirectionwithSDGs,acompanycannotonlycreateanewbusinessmodel

butalsoevolveintoasustainableentity.

HHIGroupcontinuouslyworksonstrategiesforthegroup’smid-tolong-termgrowthbyidentifyingkeyglobaltrends

throughtheUNSustainableDevelopmentGoals.Ofthe17goals,thegroup’sfocusmainlyliesoneightgoals(i.e.,goals

3,4,7,8,10,12,14and16),coupledwith22targets,asitstrivestocontributetoimplementingthisblueprinttoachieve

abetterandmoresustainablefutureforall.

KeySDGs SummaryoftargetsrelatedtoHHIGroup HHIGroup’scontributiontoachievingSDGs

Healthylivesandwell-

beingforallatallages

3.4 Reduce premature mortality from non-communicable diseases through prevention

and treatment and promote mental health and well-being.

̇ Supporting healthcare and medical expenses for the healthy lives of personnel; operating Health Promotion Center and

Oriental Medical Center; and providing professional mental health promotion services, such as psychological evaluation, group

counseling and group psychological education

̇ Health care programs for personnel such as smoking cessation and weight management treatment3.8 Achieve universal health coverage, access to quality essential health-care services

and access to safe, effective, quality and affordable essential medicines and vaccines

for all.

3.9 Reduce the number of deaths and illnesses from hazardous chemicals and air, water

and soil pollution and contamination.

Inclusiveandequitable

qualityeducation

andlifelonglearning

opportunitiesforall

4.4 Increase the number of youth and adults who have relevant skills, including technical

and vocational skills, for employment, decent jobs and entrepreneurship.

̇ Securing tech talents and nurturing outstanding experts well-versed in technology, engineering, science and the latest ICT

through well-organized technical education programs

4.5 Eliminate gender disparities in education and ensure equal access to all levels

of education and vocational training for the vulnerable, indigenous peoples and

children in vulnerable situations.

Accesstoaffordable,

reliable,sustainableand

modernenergyforall

7.2 Increase the share of renewable energy in the global energy mix. ̇ Reducing energy costs through development and application of eco-friendly technologies, such as building ESS for industrial

use

̇ Installing renewable energy generation facilities, such as wind and geothermal power stations

̇ Improving fuel efficiency by investing in the development of smart ship solutions controlling the management of energy use

on board and energy solutions controlling energy management

̇ Reducing energy consumption by installing high-efficiency LED lights

7.3 Double the global rate of improvement in energy efficiency.

Sustained,inclusiveand

sustainableeconomic

growth,fullandproductive

employmentanddecent

workforall

8.2 Achieve higher levels of economic productivity through diversification, technological

upgrading and innovation, including through a focus on high-value-added and

labor-intensive sectors.

̇ Diversifying business beyond the high value-added sectors (machinery, robotics and shipbuilding) that the Group is currently

engaging in, including by entering the smart solutions business; increasing economic productivity through innovations;

creating jobs; and supporting entrepreneurship, creativity and innovation

̇ Creating quality jobs and broadening business partnerships with suppliers, subcontractors, etc.

̇ Implementing a fair and objective performance evaluation and compensation system for all personnel

̇ Offering training sessions and financial services to partner companies to promote their growth

8.3 Promote development-oriented policies that support productive activities, decent

job creation, entrepreneurship, creativity and innovation, and encourage the

formalization and growth of micro-, small- and medium-sized enterprises, including

through access to financial services.

8.5 Achieve full and productive employment and decent work for all women and men,

and equal pay for work of equal value.

8.6 Reduce the proportion of youth not in employment, education or training.

Part 3. Sustainability Performance UNSDGs

50 51

KeySDGs SummaryoftargetsrelatedtoHHIGroup HHIGroup’scontributiontoachievingSDGs

Reductionofinequality

withinandamong

countries

10.4 Adopt policies, especially fiscal, wage and social protection policies, and progressively

achieve greater equality.

̇ Caring for the underprivileged through sharing activities, both at the firm and personnel level, for community development

and cultural/artistic support programs

Sustainableconsumption

andproductionpatterns

12.2 Achieve sustainable management and efficient use of natural resources. ̇ Reducing wastes through reuse and recycling

̇ Contributing to sustainable management and efficient use of natural resources by developing eco-friendly, high-efficiency,

smart solutions

̇ Adopting HHI’s sustainable action plans in the reporting framework and integrating management of sustainability information

by issuing annual integrated reports at the Group level

12.4 Achieve the environmentally sound management of chemicals and all wastes

throughout their life cycle, under agreed international frameworks, and significantly

reduce their release to air, water and soil in order to minimize their adverse impacts

on human health and the environment.

12.5 Reduce waste generation through prevention, reduction, recycling and reuse.

12.6 Encourage companies to adopt sustainable practices and to integrate sustainability

information into their reporting cycle .

Conservationand

sustainableuseofthe

oceans,seasandmarine

resourcesforsustainable

development

14.1 Prevent and reduce marine pollution of all kinds, in particular from land-based

activities, including marine debris and nutrient pollution.

̇ Offering repair services to make existing ships more eco-friendly by installing ballast water treatment systems and SOx exhaust

gas cleaning systems

̇ Maintaining equipment to prevent marine accidents associated with arrival/departure of ships and performing safety

management, ship operator training and joint training sessions on a continual basis14.2 Manage and protect marine and coastal ecosystems to avoid significant adverse

impacts, and take action for their restoration in order to achieve healthy and

productive oceans.

Peacefulandinclusive

societiesforsustainable

development,accessto

justiceforallandeffective,

accountableandinclusive

institutionsatalllevels

16.3 Promote the rule of law at the national and international levels and ensure equal

access to justice for all.

̇ Implementing transparent and responsible management by valuing compliance and business ethics

̇ Pursuing inclusive management activities by engaging various stakeholders in management, including active communication

with the labor union16.5 Reduce corruption and bribery in all their forms.

16.6 Develop effective, accountable and transparent institutions at all levels.

16.7 Ensure responsive, inclusive, participatory and representative decision-making at all

levels.

Part 3. Sustainability Performance UNSDGs

52 53

Materiality Assessment

Materiality Assessment

Process

Materiality

Assessment

Result

To select core topics of its integrated report, HHI Group conducts a materiality

assessment regarding stakeholders’ interests, improvements and business impact

levels on corporate activities. The assessment of 2019 identified a pool of 28 topics in

light of global reporting standards such as GRI Standards and the UN SDGs, various

social issues, and sustainable management information within the same industries.

The identified issues are classified into core, top and general topics by the levels of

public attention and business impact. The HHI Group Integrated Report 2019 discloses

the Group’s management approach to and key performance relating to the core

topics, and where deemed necessary for continuity with past reports and/or complete

disclosure of information regarding value creation, also discloses those relating to top

and general topics.

FiveKeyManagementPhilosophies

1. Enhancing Corporate Value Through Continual Growth 1 2 4 8

2. Upholding Fair and Transparent Business Practices 7

3. Pursuing Safe and Environmentally Friendly Business Practices 8

4. Promoting Strong Labor Relations Built on Mutual Respect and Trust 3 5 6

5. Demonstrating Our Commitment to Global Corporate Citizenship

Step 01.

Identifysustainablemanagement

topics.

Identify 28 topics that affect HHI Group’s

sustainable management activities and

value creation, taking into account

sustainable management trends and the

requirements under global guidelines.

Step 03.

Assessbusinessimpact.

1. Survey personnel on business impact.

(4,061 respondents)

2. Analyze key performance index (KPI)

per function.

Step 02.

Assesspublicinterest.

1. Analyze global guidelines (e.g., GRI

Standards and UN SDGs).

2. Analyze media exposure by

categorizing items into three groups:

economic, environmental and social

issues. (2,619 items)

3. Analyze the sustainable management

reports of the peer group within the

same industries.

4. Conduct a survey on stakeholders’

interest. (Q119)

Step 04.

Verifyeffectiveness.

Report the materiality assessment result

to and obtain approval from the decision

maker.

Public Interest

Business Im

pact

GeneralTopic TopTopic CoreTopic

1

2

3

4

5

6

7

8

1

2

3

45

6

7

8

9

1

23

4

5

6

78

TopTopic

1 Creating a safe workplace and raising

safety awareness

2 Attracting and retaining talent

3 Diversifying business and exploring new

opportunities

4 Respecting diversity and ensuring equal

opportunities for all personnel

5 Ensuring customer safety and health

6 Reducing waste and pollutant emissions

7 Promoting shared growth with partner

companies

8 Ensuring sound governance

9 Contributing to co-prosperity of local

communities

Improving material and energy efficiencies

Enhancing the fair trade system

Reducing adverse environmental impacts

of partner companies

GeneralTopic

1 Ensuring fair distribution of earnings

2 Addressing climate change issues,

including GHG emissions control

3 Social contribution

4 Communication with stakeholders

5 Ensuring information security, including

through protecting confidential and

personal information.

6 Respecting human/labor rights of partner

companies’ personnel

7 Reusing and recycling framework

8 Operating an integrated risk management

system

CoreTopic TopicBoundary GRI

Topic

Rankingbycategory Whetherselected

asacore

topicin2017Public

interest

Business

impact

1 ExpandingR&Dandsecuringnewtechnologies

̇ Internally: R&D

̇ Externally: research Institute

N/A 4 2 O

2 Improvingproduct/servicequalityandenhancingcustomer

satisfaction

̇ Internally: R&D, production

̇ Externally: customers,

partner companies

N/A 16 1 O

3 Enhancingjobsecurityandpromotingsoundlaborrelations

̇ Internally: all companies in

the Group

402 1 7 O

4 Creatingvaluethroughchangesandinnovations

̇ Internally: R&D, purchase,

production, sales/marketing

̇ Externally: customers, partner

companies

N/A 5 5 O

5 Reinforcingcompetenciesofpersonnel(HRD)


the Group

404 12 3 O

6 Improvingthequalityoflifeforallpersonnel,includingthrough

abetterwelfaresystem


the Group

401 18 4 X

7 Compliancemanagementandbusinessethics

̇ Internally: R&D, purchase,

production, sales/marketing

205 / 206 /

419

9 8 O

8 Pursuingenvironmentalmanagementbydeveloping

moreeco-friendlytechnologies

̇ Internally: production

̇ Externally: local communities

302 2 14 O

Part 3. Sustainability Performance MaterialityAssessment

54 55

Enhancing Corporate Value

Through Continual Growth

Creating new growth engines through continuous change and

innovation is crucial to pursue sustainable growth in the

fast-paced global business environment. HHI Group will enhance

its competitiveness and maximize shareholder value through

various efforts and deliver customer satisfaction by identifying

quality and technology as top priorities.

1.Change&Innovation 58p

2.R&D 59p

3.QualityManagement 64p

4.TechnologyEmpowerment 70p

57

Part3.SustainabilityPerformance

Change & Innovation

R&D

In2018,HHIGroupreclaimedthetitleoftheworld’sNo.1shipbuilderbywinningover20%*ofallglobalshipbuilding

ordersplacedintheyeardespitetheprolongeddifficultiesfacedbytheglobalshipbuildingindustryandanonslaught

ofnewcompetition.In2019,wewillfurthersolidifyourpositionastheworld’stop-tiershipbuildingandoffshoregroup,

backedupbyourtechnologicalprowessinLNGcarriersandmanyotherhighvalue-addedships.Particularlyhigh

expectationsareheldforthenewlyincorporatedKoreaShipbuilding&OffshoreEngineering,whichwillsupportthe

group’sshipbuildingandoffshoresegmenttohelprevampourbusinessmodelintoatechnology-centricinnovativeone

andtocentrallymanagethetechnologicalcapabilitiesofourleadingshipyards.AtHHIGroup,weareonceagainpushing

thelimits,poisedtotakethenextquantumleapforwardtobetheunparalleledleaderinthemarket.

*According to data compiled by industry tracker Clarkson Research (by CGT)

Withitsenduringeffortstodevelopcutting-edgetechnologiesthatultimatelysettheGroupapartfromallothers,

HHIGroupisnavigatingtimesofuncertaintyandsecuringnewgrowthenginesforthefuturetoensure,theGroup’s

sustainablegrowth.Basedontechnologicalinnovationthroughreinforcementofinternalresources’capabilitiesand

strategicutilizationofexternalresources,theGroupisnowlayingthefoundationforaboldleapforwardtobecomean

advancedtechnology-centricgroup.

Activities and

Achievements

Management System

KoreaShipbuilding&OffshoreEngineering(KSOE)toBeEstablished

KSOE, to be spun off from HHI as a sub-holding company to control all shipbuilding

and offshore activities of HHI Group, will receive from Korea Development Bank

(KDB) a contribution-in-kind in the form of shares in Daewoo Shipbuilding & Marine

Engineering (DSME) worth KRW 2.1 trillion and, in return, issue convertible redeemable

preferred stock (CRPS) worth KRW 1.25 trillion and new common stock (CS) amounting

to 7% of its issued share capital to allocate to KDB. When the transaction is completed,

HHI Holdings will retain its position as the largest shareholder with a 28% stake in

KSOE, followed by KDB as the second largest with approximately 7%. KDB will hold at

least half of its newly acquired KSOE shares for five years or longer, during which HHI

Group will help increase the issuer’s corporate value for a maximal rate of return on

the public funds used to secure the future of DSME.

OwnershipStructureofKSOE

ExpectedEffects

Costoptimization ̇ Reducing costs of materials through economies of scale

̇ Mazimizing efficiency by sharing best practices

̇ Integrating R&D and avoiding redundancy of investments

Securingworld’sbest

technology

̇ Leading the future market by accelerating innovative

technologies development (Green LNG carriers, smart ships, etc.)

̇ Building smart yards for productivity innovation

ContributiontoKorea’s

economicdevelopment

̇ Contributing to job creation, local economic development

and increased exports based on improved profitability

KSOE

(sub-holding

company)

HHI Holdings

HHI HSHI HMD DSME

KDB

approx. 28%

100% 80.5% 42.3%approx.

68%

KRW 1.25T in CRPS

+ approx. 7% in CS

HHIHoldings HHI*

Vision Global top-tier robot company World’s best and most trusted heavy

industries research institute

Mission ̇ Strengthening product competitiveness

̇ Developing new technologies and

products

Engaging in R&D activities to reinforce

technology, product quality and cost

competitiveness to set our products

apart from others

Strategy

and

Direction

̇ Developing a cost-saving flagship

model

̇ Developing a new Hi6 controller

̇ Expanding the lineup of flagship

models

̇ New technologies for innovative

enhancement of cost competitiveness

̇ Differentiated eco-friendly solutions

̇ Digital-based smart ships and yards

̇ Reinforced engineering capacity for

offshore plants and special & naval ships

HyundaiElectric HCE

Vision Global top-tier manufacturer of

electrical and electronic systems

Moving You Further

Mission Overcoming challenges with exceptional

innovations

Global Top 5 by 2023

Strategy

and

Direction

̇ New flagship products in the premium

segment

̇ Eco-friendly, high-efficiency

technologies as growth engines

̇ INTEGRICT-based, new solution

business models

̇ Stricter verification for product reliability

̇ Enhanced global R&D capabilities

̇ Developing ICT service/solution

technologies

̇ Technologies for better cost

competitiveness

*inclusive of HMD

Part 3. Sustainability Performance EnhancingCorporateValueThroughContinualGrowth

58 59

HHI

World’sFirsttoCommercializeIMOType-BLNGFuelTankDesignandFuelingSystemforShips

HHI’s Shipbuilding Division developed an IMO Type-B LNG fuel tank design, and for the first time in the world, applied

it to large merchant vessels. HHI completed the most optimal design suitable for containerships, including adapted

supporting structure, and enhanced and standardized the fuel tank manufacturing process in a way that can prevent

process delay due to unexpected events.

World’sFirsttoSuccessfullyTest100%Re-liqueficationofVaporizedGasfromLNGCarriers

HHI’s corporate research center constructed a single mixed refrigerant (SMR) pilot plant that re-liquefies 100% of the

boil-off gas (BOG) from LNG carriers, and for the first time in the world, achieved successful results. Made entirely of

localization equipment, SMR pilot plant successfully simulated operations on LNG carriers, such as mixed refrigerant’s

cooling temperature levels (from -163℃) and gas re-liquefication. HHI also developed new concept re-gasification

system that improved heat-transfer cycle, and introduced global shipowners at GASTECH 2018. This system can reduce

weight by as much as 150 tons and saving up USD 700,000 in operating cost. Performance verification on the technology

has been completed at pilot plant in HHI.

LaunchingSmartShipSolutionforLNGC

HHI shipbuilding division and corporate research center, power control & automation system department of Hyundai

Electric have developed smart ship solution, ISS (Integrated Smart ship Solution). ISS provides the ability to estimate and

monitor the boil-off rate, temperature and pressure of LNG on board. The estimation function of boil-off gas can be used

to optimize the voyage plan. The first vessel with this solution was delivered in May, 2019.

DevelopmentofRectangularScrubber

HHI’s corporate research center has developed a rectangular standalone scrubber, which is 30% smaller than previous

models but provides the same level of performance. This product is equipped with a hybrid-type wastewater discharge

to meet discharge regulations in all areas. The company has secured contracts to deliver more than 70 units at home

and abroad.

Performance Indicator Unit HHIHoldings HHI* HyundaiElectric HCE

R&D expenses(as a percentage

of revenue)

KRW 100

million (%)

88

(3.3)

785

(1.0)

578

(3.0)

519

(1.6)

R&D personnel Persons 78 457 240 278

*R&D spend as a percentage of revenue exclusive of dividend income

*inclusive of HMD

Responsible Organizations

in Place

HHIHoldings HHI HyundaiElectric HCE

Council R&D Sector

Conference

Technology

Development

Committee

Technology

Development

Committee

Product Development

Planning Deliberative

Council

Devoted

function

Robotics

Laboratory

Corporate Research

Center (Cities

of Ulsan and

Seongnam),

Maritime Research

Institute, Engine

Research Institute

R&D headquarters

in Yong-in City,

overseas institutes

(Switzerland,

Hungary and

China)

Institute of

Technology (Cities

of Ulsan and

Seongnam),

Reliability Research

Institute (Ulsan City)

R&D Achievements by Entity

HHI Holdings

Compact,High-speedTransportationRobotforEEI

Having developed a compact, high-speed robot capable of carrying an object weighing up to 7 kilograms at a time,

intended for use by companies in the electrical and electronic engineering industries (EEI), HHI Holdings is actively

engaging in sales activities targeting both domestic and overseas clients. Looking ahead, HHI Holdings plans on

developing additional models as a series to further increase sales.

CompactController(Hi5a-T10)

In 2018, HHI Holdings developed a compact controller to enter the electronic engineering sector. Compared to previous

models, costs have been reduced thanks to the light weight and optimal design, and usability has been improved thanks

to a power supply device for controlling and integrated design of servo drives and sequences. Mass production will start

from 2019, aimed at the company’s full-fledged inroads into the electronic engineering sector.

DevelopmentofHyundaiRobotMonitoringSystem(HRMS)

HHI Holdings developed statistical-based diagnostic technology for advanced robot monitoring. With HRMS’ enhanced

accuracy in robot monitoring and evaluation, preventive maintenance and troubleshooting services will be offered, and

real-time data transfer and analysis will be enabled based on cloud computing.

Hyundai Electric

INTEGRICT-basedEconomicalOperationSolutionforLNGCarriers

Hyundai Electric developed an Economical operation solution for LNG carriers based on the INTEGRICT platform, which

features estimation/monitoring of the LNG boil-off rate and calculation of the minimum load height required to maintain

the LNG tank at a proper temperature during navigation. This solution provides ship owners with the most efficient

RPMs for engines when taking into account the estimated amount of boil-off gas, enabling optimal navigation planning

with fuel savings of up to 6%.

Korea’sBestEarthquake-proofCast-resinTransformer

Hyundai Electric developed a cast resin transformer resistant to massive earthquake with magnitude of 9.0 on

the Richter scale and shaking severity of 11.5 on the Modified Mercalli Intensity Scale, offering the highest seismic

performance of its kind in Korea, and obtained a certificate of seismic performance in full compliance with the


60 61

requirements of ICC-ES AC-156 from the National Center for Earthquake Hazard Reduction (accredited by Korea

Laboratory Accreditation Scheme). While offering such superb seismic performance, this newest transformer is identical

in size to the conventional cast-resin transformers thanks to its optimal design of the lower frame and flexible design of

the upper frame, resulting in ease of replacement. It is expected to greatly contribute to expanding Hyundai Electric’s

market share both at home and abroad based on its technological superiority compared to domestic and international

competitors’ models and the seismic certificate obtained thereon.

FullLineupEstablishedforWorld-ClassHighVoltageGenerators

Hyundai Electric rolled out a series of new models of high-voltage power generators for industrial and marine

applications. These new models add a wide variety to the product line by adding 4.16kV, 11kV, and 13.8kV models to

previously developed 6.6kV marine application models developed in 2016. The new lineup is composed of 160 models

and when the generators are combined with medium-sized diesel engines, they are capable of producing up to 10MVA,

boasting world-class performance. Through this development, Hyundai Electric laid a foundation for expanding its

influence in the market.

Oil-circulatingDissolvedGasAnalysis(DGA)ApparatusforTransformers

Oil-circulating DGA equipment applicable to power transformers and oil-immersed distribution transformers has been

developed. To check a transformer’s operational status, DGA equipment constantly measures the concentration of

dissolved gas in the insulating oil and performing online monitoring. A DGA device consists of a gas extractor that

circulates the insulating oil inside a transformer for deaeration at constant temperature and a gas gauge equipped with

hydrogen, carbon monoxide/dioxide and acetylene measuring sensors. With a DGA product lineup in place based on

diversified types of measurable gas and methods of gas capturing, Hyundai Electric is expecting increased sales in the

transformer preventive diagnostic market.

HCE

RemoteEngineDiagnosticService

In conjunction with Cummins Inc., the world’s leading diesel engine maker, HCE is working on the development of a

remote engine diagnostic service, aiming to roll out a new model named Stage V and launch the official service in 2019.

Stage V, deploying HCE’s remote management system Hi-MATE, sends on a real-time basis the engine error codes and

operation data to Cummins’ server. Once a troubleshooting report containing the causes of error and recommended

solutions is sent out from the server, on-site repair service for failed equipment is immediately carried out. This way,

repair service efficiency and operational efficiency of clients’ equipment are expected to go up.

AutonomousForklift

HCE developed an autonomous forklift, hosting a successful demonstration event attended by representatives of leading

logistics companies. The two units of the test equipment built based on 16BRJ-9, one of the company’s current electric

reach truck models, demonstrated the new technology’s full capability to handle double stacking tasks, in conjunction with

each other. Because this newly developed self-driving system, using a laser distance measuring sensor, can perceive the

surroundings of the vehicle and locate objects, there is no need for floor markings or change of working location, enabling

the forklift to flexibly adapt to changes in the working environment. HCE will continue to develop related technologies and

improve the competitive edge of its products to boost sales.

IntegratedControlSystemforExcavatorsofAllOptions

HCE developed its own system for integrated control of optimum oil pressure applicable for small, medium- and large-

sized excavators. Until now, different controllers were installed for different options and types of equipment. This single

integrated control system boasts reduced costs and enhanced maintenance convenience of both hardware and software.

Also, this integrated controller uses hardware that meets technological standards and features safety functions, improving

product reliability. The new system has laid the foundation for developing excavators with various options that cater to

the needs of different clients, helping strengthen HCE’s product competitiveness and increase sales.

Super-sizedExcavator(HX900L)

HCE’s 90-ton class crawler-excavator HX900L meets Tier 4 Final, the fourth stage of emissions standards set by the U.S.

EPA (Environmental Protection Agency). It is the largest of HCE’s HX series excavators, having adopted a new exterior

design and cabins with improved driver experience, and aimed at forming successful inroads into the coal mining

markets in North America, Europe and Korea. Compared to the previous series, this newest model boosts greatly

improved truck loading capacity, while consuming a similar amount of fuel per day, contributing to an increase in the

customers’ total cost of ownership (TCO). From an early stage of the development, HX900L has been used in cement

mines in Korea to verify durability and performance, with customers’ feedback reflected in finalizing the product.

2019 Initiatives Entity Initiative

HHI

Holdings

̇ Developing cost-saving new models

̇ Developing collaborative robots and small transport robots for the electronic

engineering industry

̇ Strengthening service business by upgrading the HRMS 2.0 diagnostic function

̇ Developing Hi6 robot controller and enhancing cost competitiveness

HHI ̇ Developing an ultimately differentiated LNG system

̇ Advancing eco-friendly solutions

̇ Developing electricity-powered autonomous ships

̇ Accelerating deployment of a smart production system

Hyundai

Electric

̇ Developing products with a competitive edge (cost, performance) to win orders

̇ Developing technologies for key elements and future growth engines

(high-efficiency and eco-friendly devices, new energy projects, etc.)

̇ Advancing analysis, testing, and evaluation technologies for optimal designs

̇ Developing technologies to improve quality and reduce failure costs

HCE ̇ Developing high-quality equipment to respond to safety and environmental

regulations of different regions

̇ Strengthening competitiveness of mid- to large-sized construction machinery

product lineup

̇ Strengthening digital competitiveness through virtual product development

and manufacturing

̇ Developing eco-friendly smart devices that are electrically powered,

automated and intelligent

̇ Developing smart service and solutions based on ICT convergence


62 63

Management Policy


in Place

Performance Indicator

Entity DiscussionForum DedicatedOrganization

HHI

Holdings

̇ Weekly breakfast meetings (chaired by CEO)

̇ Weekly non-conformance report (NCR) updates

(chaired by CEO)

̇ Weekly updates (chaired by relevant executives)

̇ Monthly integrated meetings (chaired by CEO)

Quality Management

(QM) Team

HHI ̇ Weekly base quality trend updates

̇ Weekly breakfast meetings, etc. per business division

QM Dept. of each

business division

Hyundai

Electric

̇ Bi-monthly quality meetings

̇ Quality subcommittee

QM Dept.

HCE ̇ Weekly/monthly quality meetings

̇ Global conference

QM Office

HMD ̇ Weekly quality updates

̇ Special committee on quality precision after-sales

service (A/S)

QM Dept.

Quality Management

HHIGroupiscommittedtowinningcustomerconfidencebydeliveringexcellentproductsandservices.Tothatend,each

companywithintheGrouphasacquiredandismaintainingISO9001,theinternationalstandardforQualityManagement

Systems(QMS).Inaddition,theGroupstrategicallymanagesqualitylevelsbysettingupqualitymanagementpolicies,

whilealsocarryingoutcustomer-centricqualitymanagementactivitiesBypayingheedtocustomers’complaints.

Category Unit HHIHoldings HHI HyundaiElectric HCE HMD

Internal audit of QMS Audits 12 33 55 12 48

Internal/external quality

audit of partner companies

Audits 24 409 558 71 281

Personnel who completed

quality training course*

Persons 124 365 424 136 589

*Inclusive of employees of partner companies

HMDHCE

HyundaiElectricHHIHHIHoldings

̇ Zero defects and safety

̇ Cost competitiveness

̇ Technology initiatives to

lead business

̇ New market exploration and all-

out efforts to win orders

̇ Minimizing quality failure cost

̇ Establishing a culture in conformity

with quality standards

̇ Proactive cooperation for quality

̇ Raising quality awareness

̇ Minimizing quality cost

̇ Well-functioning risk management

system

̇ Enhancing advanced product

quality planning (APQP)

̇ Achieving quality that satisfies

customers

̇ Ensuring quality in global sourcing

̇ Completing quality assurance

system

̇ Higher “clean” acceptance rate

upon first inspection


Quality Management

Activities and Achievements

QMSOperationandAssessment

At HHI Group, a QMS that satisfies the international standards is in operation to

keep up with customers’ expectations by producing high-performance products

free from defects. The effectiveness of its QMS is ensured through periodic

internal assessments conducted annually to check on each team’s work process

and compliance. Further, in order for the QMS to achieve the intended results,

procedures are in place to identify ever-changing internal and external environment

as well as, various issues and expectations of stakeholders. By preparing in

advance what is needed to deal with them and regularly checking how they were

actually dealt with, HHI Group is consistently strengthening risk and opportunity

management.

QualityTraining

To nurture experts in charge of quality, HHI Group offered in 2018 various courses

with internal and external instructors, including a quality planning expert course,

quality issue root cause analysis course, and a course for experts of quality

diagnosis of partner companies. Also, to foster QMS experts, the Group annually

offers an internal quality auditor certification course and an ISO accredited auditor

certification course, with experts with international quality certificates providing

support to improve the Group’s QMS.

InternationallyRecognizedQualityManagementCertification(ISO9001)

HHI Group has acquired and is maintaining ISO 9001, the international standard

for QMS. In the first half 2018, HMD’s certificate was renewed by Lloyd’s Register

satisfying the criteria for renewal as required once every three years, thereby

ensuring the effectiveness of its QMS and customer confidence.

Entity Assessmentmethodology

HHI Holdings Third-party surveillance audit

HHI Quality management system maturity assessment led by DNV GL,

an international accredited registrar and classification society

HMD Independent quality management based on a quality assurance system

HHIHoldings

accredited in

2017

HHI

accredited in

1992

HyundaiElectric

accredited in

2017

HCE

accredited in

2017

HMD

accredited in

2012


64 65

QualityTrainingCourse

QualityFailureCost

HHI Group further improved its quality failure cost management system in a way

that ensures clear accountability and effective target management. In addition, the

Group continues efforts to enhance the effectiveness of its quality management by

identifying the quality failure cost as a KPI, and to reduce such cost through various

campaigns and inspection activities.

QualityManagementforPartnerCompanies

Through regular quality audits, HHI Group identifies the root cause and accountability

for each of the critical issues, while helping improve its partner companies’ QMS levels.

By offering training courses directly to quality personnel of partner companies and

adopting various accreditation systems to ensure quality in outsourcing, the Group

endeavors to help enhance the overall quality of partner companies’ products.

Entity EnsuringQualityinOutsourcing

HHI

Holdings

̇ Accreditation of outsourced assembly service

̇ Tighter regular quality system inspections

̇ Additional quality audit for modular outsourcing

HHI ̇ Regular, ex-post and special audits of partner companies to inspect their

quality systems, evaluate the manufacturing capabilities, and monitor the

implementation

̇ Conference for zero quality issues, quality issue inspection meeting, TFT to

support partner companies and listening to the voices of customers (VOC)

̇ Quality improvement and independent auditor certification training

̇ Quality competition

Hyundai

Electric

̇ Evaluation of partner companies’ quality in conjunction with DNV GL

̇ Technical training tailored to each level

HCE ̇ Quality audit of imported parts

̇ Mass production approval only for parts and processes whose quality has been

proved in the initial sample inspection

̇ Quality Audit System (QAS)

HMD ̇ Audit quality management system certification (graded into 4 classes from S to C)

HMDHCEHyundaiElectricHHIHHIHoldings

6courses

̇ Inspector’s specialization

training

̇ Quality system training

̇ Painting worker certification

training

̇ Quality inspection training

̇ Measuring equipment operation

training

̇ Certified quality auditor training

9courses

̇ Quality planning expert training

̇ Quality issue root cause analysis

training

̇ Quality diagnosis experts for

partner companies training

̇ Internal quality auditor

certification training

̇ ISO accredited quality auditor

certification training

5courses

̇ Quality management training

̇ Quality expert training

(for subcontractors)

̇ Quality system training

̇ ISO 9001 risk management

training

5courses

̇ Quality expert nurturing

̇ Expertise in QM technology field

improvement process

̇ Non-destructive inspectors

training

̇ 3D layout measuring instrument

training for use

̇ Quality improvement training

for partner companies

5courses

̇ Register of shipping training

˙ Quality inspection training by

process

˙ Specialized training by

department

˙ Integrated quality management

promoter workshop (advanced

training on risk/quality

management systems)

˙ Intellectual property training

Activities and Achievements by Entity

Hyundai Electric

CustomerSatisfactionSurvey

Led by our in-house sales planning division, customer satisfaction surveys are conducted, and the results are reported

to the management and forwarded to the responsible department to help improve quality. For each after-sales service

offered, Happy Calls are made to make sure the customer feedback is reflected in Hyundai Electric’s continued efforts to

improve processes and products.

HHI Holdings

QualityIndexManagement

The number of requests for free after-sales service filed for every 100 units of robots after shipment serves as the

product quality index at early stages after shipment. In 2018, this quality index was improved by over 20% compared to

the previous year.

IndexCategory Unit 2017 2018

After-salesServiceWithin100DaysOfShipment No. of requests per 100 robots 5.8 4.5 (22% y-o-y improvement)

After-salesServiceWithin365DaysOfShipment No. of requests per 100 robots 11.9 9.4 (21% y-o-y improvement)

HHI

JointQualityWorkshopacrossAllShipyards

HHI, HMD and HSHI, to improve work efficiency and create synergies at the group level by sharing knowledge, held

a joint quality workshop from July 12 to July 13, 2018. Quality leaders and working-level personnel responsible for

quality management at each shipyard gathered together to discuss topics including better ways to manage welder

qualifications and how to improve quality failure cost management standards. The workshop will be held on an annual

basis, in order to strengthen cooperation between the entities to improve quality.

QualityCampaign

HHI’s Shipbuilding Division, as part of its APQP efforts, conducts monthly quality campaigns in conjunction with its

personnel, per each category: hull, outfitting, painting and materials, with an advance notification made to the rele-

vant department.

Hull ̇ Follow-up procedures on key requests from shipowners and critical review items for quality management

̇ Meetings after comprehensive on-site inspection

Outfitting ̇ Campaigns prioritized in the event of a drastic change in the quality index or a material quality issue

Painting ̇ Disclosing and managing relevant quality data, such as base quality, areas of frequent customer complaints, and specific

issues related to on-site practices

Materials ̇ Odd months: comprehensive inspection on hull, outfitting and painting

̇ Even months: unit-specific inspection by department, steel outfitting company and function


66 67

DesignQualityImprovementActivities

Enterprise-wide efforts are underway to improve design quality through measures based on feedback from both

in-house divisions and partner companies for the design of better performance, productivity, etc. From 2019, more

rigorous efforts are in place to thorough implement measures for better design quality. Also, by adding QR codes to

the design blueprints. we have significantly reduced issues arising out of misreading of the drawings.

ReliabilityAssessmentCenter

Hyundai Electric’s reliability assessment center has been in full operation since 2018, aimed at “ensuring superior

performance and durability of products by presenting design rationales,” conducting a total of 255 reliability tests in the

first year. In March 2019, the Center’s three laboratories were accredited by the Korea Laboratory Accreditation Scheme

(KOLAS) for conducting tests in the areas of large-power high-voltage equipment testing, insulating oil analysis and

electromagnetic compatibility testing, respectively, solidifying the Center’s credibility. Going forward, the Center will play

a pivotal role in enhancing the quality and reliability of Hyundai Electric’s mass-produced products.

HCE

QualityIndexManagement

HCE uses two quality indices for its products: the number of on-site equipment breakdowns that occurred within the first

six months (up to 200 hours of operation) after sales and that within 12 months after sales, to follow up on initial quality

and long-term durability of its equipment. For the sake of continuous quality improvement, HCE makes an

enterprise-wide effort to reduce customer complaints with a division-specific responsibility system in operation.

ProductSatisfactionMeasurement

For each after-sales service offered, Happy Calls are made to identify room for improvement and product satisfaction

levels. Further, customer feedback, collected via branch meetings and meetings of representatives of each hub, and

regular customer satisfaction surveys, is fed into our product roadmap for a constantly improving customer experience.

ImprovedProcessforNewModelDevelopment

The process of developing new models has been improved to enhance design and field testing, and our reliability

assessment center has been newly established to ensure customer-oriented verification of equipment. Further, a

perceived quality assessment has been introduced to find out what customers have to say about the usability of our

products, thereby increasing customer satisfaction.

EndeavorstoReduceCustomerComplaints

Making continued efforts to reduce customer complaints at the enterprise-wide level, we are committed to drastically

improving quality and continuously enhancing the brand image. As each of our functions is required to take

responsibility for quality issues that are relevant to them, addressing customer complaints is prioritized by each function,

which makes HCE highly responsive and prompt in problem-solving for quality issues.

Indexcategory Unit ConstructionEquipment IndustrialVehicle

InitialQualityIndexImprovement(y-o-y) % 26 35

DurabilityIndexImprovement(y-o-y) % 7 31

HMD

QualityIndexTargetsManagement

To improve the quality control level, a total of five specific quality indices are in place: inspection findings rate, inspection

cancellation rate, NDT defect rate, recommendation implementation rate and QAS index. A particular focus is placed

on the QAS index in an effort to ensure zero defects when products in manufacturing are handed over from one

department to another and to enhance the completeness of the quality assurance system. The quality indices for 2018

recorded 99.7%, exceeding the annual target of 99.4%. Still, our efforts to further enhance the quality indices every year

know no bounds.

QualityAssuranceSystemUpandRunning

Our quality assurance system is in operation to ensure that independent quality management efforts are made at the

production site to hand over products free from defects to the next department. Analyzing inter-departmental feedback to

eliminate the root causes of issues and prevent recurrence of such issues, active efforts are underway to establish a quality

assurance system for self-process completion.

FinishingTouch“ZoneFinal”Checkup

HMD has enhanced checkup procedures of the finishing touch process in order to further improve quality before delivery

of ships and prevent complaints from the shipowners when the ships are delivered. By doing so, we continue to reduce

cases of omitted installation of parts and malfunctions while ensuring cleaning and tidying up.

On-SpotQualityCampaigns

HMD is doing its best to prevent quality issues via direct communication with workers on production sites, conducting a

Tool Box Meeting (TBM) campaign every month to enhance quality. In particular, information on standard procedures is

widely shared with workers and used as training materials to ensure consistent quality throughout a process.


HHI

Holdings


̇ Applying and upgrading the APQP

̇ Reviewing whether standards are in place and followed

HHI ̇ Minimizing quality failure cost

̇ Establishing a quality culture that ensures compliance with quality standards

̇ Promoting collaboration to ensure quality

Hyundai

Electric

̇ Reducing quality costs based on APQP management

̇ Intensifying quality training

HCE ̇ Launching defectless equipment based on enhanced APQP

̇ Enhancing efforts to reduce customer complaints

̇ Establishing an enterprise-wide virtuous cycle for quality improvement

HMD ̇ Focusing efforts to achieve the “NEW 1234” quality target

̇ Achieving the goal of non-inspection by shipowners

̇ Preventing quality failures based on independent quality assurance procedures

by each node

̇ Removing unnecessary grinding tools and reducing quality failure cost


68 69

Entity ManagementSystem

HHI Having established its Technical Education Institute in 1972, HHI has nurtured technical

professionals through systematic training and education programs. By revamping the

core technology transfer system, systematic technology transfer is encouraged and

facilitated, contributing to strengthening HHI’s quality competitiveness. In 2019, HHI

plans to increase training opportunities through the establishment of a technology

competency evaluation center and enhance the skills of its personnel via function-

specific diagnosis of competencies.

HMD Since HMD founded its Technical Education Institute in 2001, a technical training

system to systematically nurture manufacturing engineering workers and preserve

and transfer on-site production technologies has been in operation. Available or

planned at the Institute are courses outside of work hours, technological support

for partner companies as part of its programs to educate trainees and tailored

programs to improve the skills of new hires. In 2019, HHI plans to strengthen its

technological capabilities by setting three goals: fostering practical engineers,

producing job-based technology enhancement training and ensuring advanced

manufacturing skills through the transfer of core technologies.

HCE In 2006, HCE established its Global Training Center (GTC) in Eumseong, North

Chungcheong Province, offering education programs by level to train technical

professionals. HCE fosters equipment experts with well-organized training programs

tailored to each level of competencies, while endeavoring to provide support to

help technical professionals easily adapt to the working environment by offering

courses for obtaining small construction machinery operation licenses. In 2018, HCE

opened its Technical Training Center (TTC) in Ulsan to foster experts in manufacturing

engineering, striving to foster new workers and improve their skills. In 2019, we plan

to build an online training website and develop training programs for dealer trainers.

Technology Empowerment

HHIGroup’stechnologicalexcellenceisattributedtoitstalentedtechnicalpersonnelanditstraininginfrastructurethat

enablesstrategicfosteringofsuchexcellentprofessionals.Asitbecomesincreasinglyimportanttostrategicallynurture

talentedprofessionals,theGroupisputtinggreateffortstoestablishawell-organizedincubationsystemtoimprove

thecompetenciesofitsmanufacturingengineeringworkers.Also,inanefforttopromoteco-prosperitywithpartner

companies,theGroupisreferringtraineeswhohavecompleteditstrainingprogramsfornurturingtechnicalprofessionals

tothepartnercompanies.

Management System


At HHI Group, a variety of technological training infrastructures to foster highly

skilled professionals through systematic operation of training programs are in

operation. In order to plan well-organized training programs, the Group has

established a growth model for the manufacturing engineering workforce and

is strategically fostering outstanding resources in the field by providing essential

learning opportunities relevant to manufacturing engineering.

Category Unit HHI HMD

Manufacturing engineering training personnel Persons 5,062 1,104

Passers of intra-company qualification exams Persons 184 -

Beneficiaries of training programs with job referrals Persons 119 17

Training personnel for partner companies Persons 749 649

Training personnel for prospective employees of partner

companies

Persons - 44


HHI

ProductionEngineerNurturingProgram

To promote production engineers’ continuous growth and vision accomplishment as well as to motivate them, a talent

development program tailored to their needs is in place, offering occupational improvement training. We established HHI

Competency Standards by analyzing technologies used at different sites, and based on these standards, skills diagnosis

and training by level will be offered to clarify the direction of talent nurturing for production engineers and effectively

support their acquisition of skills.

RedesignandActiveImplementationofCoreSkillTransferProgram

Since 2013, HHI has been operating Core Skill Transfer Program, through which key production technologies are

systematically transferred. In 2018, we evaluated 49 core skills and certified 41 of them were effectively passed on

through the program, awarding HHI Technology Master Prizes to excellent performers.

In-houseQualificationsSystem

HHI operates an in-house technical qualification system for production engineers of all its affiliates and partner

companies. In 2018, a total of 186 HHI workers passed the in-house qualification system in 12 certification types. This

system provides employees with opportunities to develop themselves and motivates them to acquire qualifications.

In-houseSkillsContest

In the 2018 competition, individual participants vied in the four categories of welding, electrical construction, painting

ProductionEngineerNurturingProcess

HHI-accredited MasterHigh performers (leaders)

Middle performers

(advancement training)

Low performers

(supplementary training)

Testing

̇ By job type & level

̇ Graded into 5 levels

Production executives

HHI Competency Standards

Production engineers

matching

SkillDefining LevelTesting Training TalentProducing


70 71

HMD

EmploymentSteppingStoneProgram

In an effort to preemptively secure technical talent, we provide employment-linked vocational training programs for

students of meister high schools, including Ulsan Meister High School, Seoul Robot High School and Sudo Electric

Technical High School. Thanks to our systematic training programs such as field training conducted in conjunction with

HHI Technical Training Center, these talented youngsters are able to acquire basic skills and naturally develop a sense of

belonging to HMD along the way before joining us.

JobImprovementTrainingProgramforProductionEngineers

We provide job improvement training for our production engineering professionals to increase productivity through

continuous occupational competency improvement and motivation. In 2018, a total of 31 courses were offered, with

1,196 production engineers completing one or more courses.

NationalHumanResourcesDevelopmentConsortiumBusiness

To enhance the skills of workers of partner companies and nurture new production engineering professionals, HMD,

for the 15 consecutive years since 2004, has been engaging in the national human resources development consortium

business spearheaded by the Ministry of Employment and Labor and Human Resources Development Service of Korea.

In this course, HMD has made the most of its outstanding instructors, facilities and equipment to offer training programs

of excellent quality. In 2018, a total of 557 individuals completed the course, producing 44 new technicians.

HCE

OpeningofGlobalTrainingCenter

Our Global Training Center (GTC) located in Eumseong, North Chungcheong Province, is dedicated to domestic and

overseas technical training. In August 2018, Technical Training Center (TTC) was also established in Ulsan to nurture

technical personnel specialized in construction equipment. Equipped with theory/practice training halls, conference

rooms, etc. it offers a total of 20 courses. The training programs include customized training for each sector and

production theory training for managers.

Course TargetTraineeGroup

On-site practical training, performance inspection training, standard assembly skills training,

assembly line training

Production engineers,

production partner companies

Sales training, understanding of new models, equipment training, on-the-job training Sales personnel, all staff

After-sales service skills, troubleshooting, understanding of professional systems, engine service

certification

Overseas dealers & domestic

agents, partner companies

Understanding of basic equipment, customer training, motorcycle/moped license course Customers

TargetTraineeGroup No.ofSessions No.ofPersons

Production engineers 12 170

Partner companies 21 204

Overseas dealers & domestic agents 79 874

Customers* 88 737

*Inclusive of new acquirers of motorcycle/moped licenses


HHI ̇ Company-led systematic cultivating system to sharpen production engineers’

technical skills

̇ Development of HHI Competency Standards and establishment of a growth model

for production engineers

̇ Mandatory training customized to production engineers and assessment of

individual skill levels

HMD ̇ Skilled crafts transfer system for preservation and transfer of production

technologies

̇ Nurturing talented production professionals with active certificate programs

̇ Establishment of customized training systems by occupational type and level

HCE ̇ Supplementing occupational training by revising the teaching plans based on case

studies on previous failures

̇ Nurturing high performers into professionals dedicated to occupational training to

serve as leaders for fieldwork personnel

̇ Building an integrated online training system to provide a variety of learning

opportunities

and marine structures design, while group participants contended in the four categories of tube assembly, pipe

assembly, hull design and outfitting design. Of the 150 HHI participants, 80 had the honor of winning an award, also

receiving the prestigious Minister of Employment and Labor Award and a CEO citation.


72 73

Upholding Fair and Transparent

Business Practices

HHI Group aims to be the most transparent company, rather than

the largest one. By upholding sound ethical practices and compliance,

we will work to create a market environment that contributes to the

growth of all our stakeholders and the sustainability of our society.

1.ComplianceManagement 76p

2.BusinessEthics 78p

3.GreaterManagementTransparency 81p

75


Compliance Management

HHIGroupiscommittedtoraisingawarenessofethicalandlawfulconductandcomplyingwithallapplicablelawsand

regulationsbyensuringthecomplianceguidelinesareembeddedinallitsbusinessactivities.OurComplianceProgram

hasbeeninexistencesince2004,andweactivelyengageincomplianceactivitiessuchasassessment,audit,training,

andconsulting.

Management System


in Compliance Control and

Fair Trade

2019 Initiatives

Organization

BOD Reporting


HHI Group employs a centralized structure for compliance with the enterprise

Compliance Team, which is responsible for establishing and maintaining the

compliance management system of each entity of HHI Group.

ComplianceTraining

Regular compliance training is provided for major decision-making positions. We also

offer the “Compliance Training at Your Doorstep” program where a lecturer visits a

requesting team and delivers training on the subject chosen by the team.

ComplianceNewsletter

We publish compliance newsletters on the intranet on an ad-hoc basis to educate

employees on compliance management in an effort to alleviate the risks of compliance

violations that may arise during the course of business.

Legal&Anti-CorruptionApprovalandReview

HHI Group has an anti-corruption pre-approval system and conducts legal reviews

to cultivate a clean and fair management culture and to prevent legal risks. In 2018,

we established a new guideline on compliance with laws and regulations on financial

sanctions to effectively respond to and prevent risks at home and abroad.

SubcontractingComplianceTrainingandWorkProcessEnhancement

HHI Group offers periodic and ad-hoc training on subcontracting compliance to the

employees who deal with contractors in their work capacity and improves the relevant

work processes, thereby addressing the associated risks in a proactive manner.

SubcontractingComplianceProgramInspection

HHI Group performs site inspections into departments that have direct business

contacts with subcontractors to review the process and systems of awarding contracts

and issuing written requests for technical documents.

OnlineChannelforContractorCorruptionComplaints

The Compliance organization operates an online channel through which a contractor

can directly contact and report suspicious business transactions indicative of corruption.

ComplianceRiskAssessments

To accurately understand the content and level of compliance risk, HHI conducts risk

assessments for all departments and utilizes the results for system improvement,

training, and inspections to enhance the effectiveness of compliance.

Function/Position(Role) Responsibility

BOD/CEO Confirm compliance plans and set directions; discuss and decide

compliance-related agenda

Compliance Officer /

Compliance Team

Ensure centralized compliance system operation; establish/amend

compliance standards and rules; offer compliance education and

run relevant training programs; perform compliance audits

On-site Compliance

Organizations / Personnel

Cascade knowledge of compliance laws and regulations through

training; conduct internal compliance assessment

Category Initiative

Establishing fair

subcontracting

practices

̇ Review and improve the process of awarding and delivering

subcontracts

̇ Reinforce training on subcontracting laws

Improving compliance

management system

̇ Prepare and distribute work manual and checklist for different

compliance issues

̇ Enhance compliance risk assessments and monitoring

Promoting compliance

culture

̇ Expand the application of compliance system to subsidiaries

including distribution of Anti-Corruption Act Compliance Guideline

̇ Enable integrated handling of subcontracting compliance issues

and provide effective support

ComplianceAuditReporting ComplianceProgramAuditReporting

Frequency Annual Semi-annual

Content Corporate compliance audit result Compliance program audit result

Category Unit Performance

Compliance training No. of training sessions Sessions 58

No. of participants Persons 3,223

Assessment of subcontracting transactions

and associated risk

No. of teams audited Teams 6

Legal consulting related to fair transaction Cases 195

Legal consulting related to corruption prevention and financial sanction Cases 79

Other legal consulting Cases 948

Social Responsibility . Sustainable Growth

Establishment and Promotion of

Compliance Culture

Management’s Strong Commitment

Risk Identification/Assessment Continuous Improvement Audit/Training

Part 3. Sustainability Performance UpholdingFairandTransparentBusinessPractices

76 77

Business Ethics

Likeaforestthatcontributestotheco-existenceofallsurroundinglives,wewillfosteranenvironmentforall

stakeholders’growthanddevelopmentandpursueasenseoffairness,ownership,responsibility,enthusiasm,safety,

transparencyandtrust.HHIGroupwillputforthitsbestefforttobecomeacorporategroupthatcustomersandpartner

companieswanttodobusinesswith,onethatinvestorswanttoinvestin,onethatemployeeswanttoworkat,

andonethatfulfillsitsresponsibilityforthenationandcommunities.

Direction

Direction for Charter of

Ethics

Materializing Business

Ethics

Achievements in Ethics

Management

Management System


in Place

Performance Indicator Category Unit Performance

Business Ethics Training No. of participants Persons 20,232

Completion rate % 90

No. of business partners Company 72

On-Site Hearings of

Business Ethics

No. of employees Persons 358

No. of partners Company 91

No. of recommendations Cases 44

Completion within 3 months % 77.3

Entity Organization

HHI Holdings, HHI, Hyundai Electric, HCE, HMD Integrated Business Ethics Team

FOREST

Fairness Ownership Responsibility Enthusiasm Safety Transparency&Trust

Customers

Customer Satisfaction

Community

Corporate Citizen

Employees

Respect

PartnersandCompetitors

Fairness

Government

Compliance

ShareholdersandInvestors

Transparency

CharterofEthics

CodeofConductforBusinessPartners

CodeofConduct

BusinessEthicsActionProgram

SpecialCodeofConduct

TrainingandPromotion

BusinessEthicsGuidelines

Declaration of

HHI’s management

philosophies based on

business ethics

Specific ethical

standards in the

Charter of Ethics by

sectors

Standards for

employees engaged

in business functions,

which require specific

standards and stricter

ethical obligation

Detailed job guidelines

for the implementation

of business ethics in

the workplace

Ethical standards for

shared growth with

partners through

transparency and

fairness in business

Specific institution and

process to develop a

fair and transparent

corporate culture

Efforts for active

employee participation

in ethics management

and promotion of

ethical corporate

cultureCodeofConduct

SpecialCodeofConduct

BusinessEthicsGuidelines

CodeofConduct

̇ Enforced on October 4, 2005

̇ First revised on July 25, 2014

̇ Criterion for action and

valuation

̇ Enforced on May 2, 2007

̇ Additional duties of

employees engaged in

six jobs requiring higher

integrity and morality

(procurement, HR, sales,

finance/accounting,

engineering and IT)

̇ Enforced on January 1, 2002

̇ Sixth revision on July 25,

2014

̇ Business process standards

for understanding and

practicing business ethics

policies

̇ Enforced on October 4, 2005

̇ Second revision on July 1,

2016

̇ Duties and obligations

applied to personnel of

HHI Group’s business

partners

̇ Product liability

enhancement

̇ Customer protection

̇ Eco-friendly management

̇ CSR

̇ Community involvement

̇ Respect for employees’

human rights

̇ Improvement of work

environment

̇ Prohibition of

discrimination

̇ Establishment of sound

business practices

̇ Protection of technology

and sales secrets

̇ Prohibition of poaching

employees from rival

companies

̇ Sound government

relations

̇ Cooperation and support

for policy making

̇ Tax payment in good faith

̇ Enhancement of

corporate values

̇ Transparent disclosure of

management information

̇ Equal treatment

Since ethics regulations for procurement position were established in 1994, HHI

Group has practiced and expanded its ethics program, online ethics violation

reporting platform and training courses. In October 2005, we declared our Charter

of Ethics which proclaims its ethical management philosophy, and have worked to

make it fundamental to the way we do business.

CharterofEthicsofHHIGroup

We strive to become a respected and trusted company that positively contributes to

its customers, shareholders and society with the Hyundai Spirit. To achieve this goal,

we hereby establish this Charter of Ethics, which defines our standards of conduct

to follow in accomplishing faithfully our original role and social responsibilities as a

corporate entity and we declare that we shall comply with this Charter of Ethics.

1. We shall be an ethical corporation that abides by all domestic and international laws and

regulations through fair and transparent management practices.

2. We shall achieve customer satisfaction by meeting their needs and expectations.

3. We shall seek to maximize shareholder’s value through fair and efficient management.

4. We shall work to fulfill our social responsibilities and duties as a member of local

communities, and contribute to the development of our nation and society.

5. We shall work to create a transparent and clean corporate culture through fair competition

and trading practices.

6. We shall aim to be a corporation with the highest quality human resources that offers

equal opportunities to our employees in a safe and comfortable working environment.

HHI Group gives definition to the Charter of Ethics by each job, and enacts and

revises the Code of Conduct, the benchmark for business and Business Ethics

Guidelines. We are also regularly making revisions to reflect social demands and

changes in the statutory laws and regulations against corruption.

CommitmenttoBusinessEthicsManagement

HHI Group’s employees and its partners are required to submit an annual Business

Ethics Confirmation, to pledge their commitment to understanding the relevant

regulations and abiding by corporate policies and guidelines. The pledge requires

compliance with ethics regulations and the anti-corruption law to avoid unfair

trades, corruption, illegal solicitation and graft as prohibited by laws and regulations.

Employee Business Partners


78 79

To ensure a sound corporate governance and transparent management, HHI Group

has regulations and articles of incorporation in place stipulating that more than

half of BoD members must be outside directors. There are three subcommittees:

Outside Director Recommendation Committee, Audit Committee and Internal

Trade Committee. The BoD has authority to vote on matters mandated from the

shareholders’ meeting and set out the basic principles of corporate operation. The

directors also have the rights to appoint the CEO and Chairman of the Board as well

as the responsibility to oversee the duties of executives.

Category Initiative

Providing group training to

a wider audience

̇ Target all new joiners and resident staff

̇ Improve training satisfaction by catering to the specific

needs and assigning full-time training coordinator staff

Engaging in activities to

promote ethics management

̇ Accelerate promotional activities utilizing Ethics

Management newsletter (webzine)

Revising Ethics Management

Policy

̇ Review the appropriateness of the policy and any need for

amendment in human rights protection and other areas

Publishing ethics audit cases

Identifying ethical risks and taking preventive actions

CommitteeName ObjectiveandAuthority

Audit Committee Oversight of directors’ implementation of duties, access to

material and information required for audit

Outside Director

Recommendation Committee

Recommendation of qualified candidates for

outside directors

Internal Trade Committee Establishment of basic policies on internal transactions,

inspection of counterparty selection standards and practices

Greater Management Transparency

HHIGroupiscommittedtobuildinganadvancedcorporategovernancestructurethatensurestheindependenceof

theBoardofDirectorsandpromotesmanagementtransparency.Ourgoalistolaythefoundationforagoodcorporate

governanceframework,tofullycomplywiththelawsandregulationsgoverningcorporategovernanceandcircular

shareholding,operateamoreefficientBoD,andprotectshareholderrights.

Board of Directors

Operation

BoD Subcommittees

2019 Initiatives


Internal Director Persons 2 3 2 2 1

Outside Director Persons 3 4 3 3 3

Ratio of outside directors % 60 57.1 60 60 60

BoD meetings convened in

2018

Meetings

held

12 14 13 9 12

Items BoD passed in 2018 Items 30 36 39 20 21

Outside directors’

attendance rate*

% 100 93.2 97.8 96.3 94.4

*Exclusive of interim resignations

ConflictsofInterestReporting

When a possible conflict of interest is identified, the employee in question is

obligated to report the issue in advance to prevent unfair practices.

EthicsViolationReportingandWhistleBlowerProtection

We have an effective system for reporting allegations of wrongdoing, which includes

illegally accepting gratuities or improper treatment, obtaining unjust gains using

position or authority, and abusing authority. Reports can be submitted by phone,

fax, email or post, or online. We aim to protect the whistleblowers’ identity and

reward them in accordance with our reward guidelines.

*Link to HHI Group Business Ethics: https://ethics.hhigroup.kr/html/main.html

EthicsManagementSelf-Evaluation

HHI Group’s employees find improvements and enhance the understanding of

business ethics through self-monitoring and evaluation.

TrainingofBusinessEthics

HHI Group runs group training courses and online courses on business ethics. The

materials are presented in viewer-friendly formats such as newsletters, animated

movies and cartoons. HHI Group also works to promote business ethics in its

business partners by introducing its ethical management system at HHI Council, a

discussion forums and trainings for major partners.

On-SiteHearingsandReviewofBusinessEthics

HHI Group conducts field sessions to hear from employees and partner companies

and diagnose and improve the level of ethics compliance. To this end, we review

how business ethics are implemented in the field and conduct additional reviews on

items requiring further improvement.

CleanNoticeSystem

Prior to major national holidays every year, we send out letters to our business

partners asking not to provide any gift to our employees. We advise our partners to

report any bribery demands, including attempts, to the Business Ethics Team. When

employee unavoidably receive gifts from stakeholders, we guide them to return the

gifts via our designated courier or donate to charities.


80 81

HHI

BoDComposition

Shareholders

MajorChangestoManagementPerformancein2018

HHI and HSHI agreed upon HSHI’s split and merger* on August 22, 2018. On October 31, HHI held a board meeting

substituting for a general meeting of shareholders, and HSHI an extraordinary general meeting of shareholders, for

each to approve the decision. As the split and merger process was completed on December 1, HMD transitioned from a

third-tier subsidiary to a second-tier subsidiary, freeing the Group from the restrictions placed on the holding company

under the Monopoly Regulation and Fair Trade Act. Also, HHI Holdings acquired 3.9% of the HHI stocks held by HMD on

August 22, 2018, breaking up the cross-shareholding structure. Throughout 2018, HHI Group enhanced legal compliance

and improved transparency of governance.

*Spinning off HSHI into a business entity and an investment entity (holding HMD shares), and HHI merging with the investment entity.

Type Name Position Gender CurrentOccupation Committee Appointed

Date

Internal

Director

Ka

Sam-hyun

Chairman Male Co-President & CEO of

HHI

Internal Trade Committee March

2019

Kwon

Oh-gap

Director Male Vice Chairman & CEO of

HHI Holdings

Outside Director Recommendation Committee March

2018

Han

Young-seuk

Director Male Co-President & CEO of

HHI

- March

2019

Outside

Director

Yoo

Kook-hyun

Director Male Attorney at Law Firm

Kim & Chang

Audit Committee, Outside Director Recommendation

Committee, Internal Trade Committee

March

2018

Lim Suk-sig Director Male Honorary professor at

the University of Seoul



March

2017

Choe Hyuk Director Male Professor of Finance,

Seoul National University



March

2017

Yun

Yong-ro

Director Male Chairman & CEO of

Koramco



March

2019

(As of March 31, 2019)

Category Name No.ofShares Ratio(%)

Shareholders with over 5% HHI Holdings 21,907,124 30.95

NPS 6,583,827 9.30

KCC 4,673,962 6.60

Minority shareholders 30,655,817 62.83

The ceiling of the remuneration of the BoD members is annually decided by the

resolution of the Annual General Shareholders’ Meeting to ensure transparency

and justification. The 2018 annual remuneration ceiling for directors approved by

the General Shareholders Meeting was KRW 4 billion (KRW 1.7 billion for HMD).

Remuneration of BoD

Members


Directors* Persons 6 8 5 5 5

Total remuneration paid to

director

KRW

1 million

2,313 4,909 2,394 932 794

Average remuneration per

director

KRW

1 million

385 614 430 186 159

HHI Holdings

BoDComposition

Shareholders


Date

Internal

Director

Kwon

Oh-gap

Chairman Male Vice Chairman & CEO of

HHI Holdings


2018

Seo

Yoo-seong

Director Male COO of’ Robotics Division,

HHI Holdings

Internal Trade Committee December

2018

Outside

Director

Kim

Hwa-jin

Director Male Professor of Seoul

National University

School of Law



March

2019

Shin

Jae-yong

Director Male Professor of Seoul

National University

Business School



April

2017

Hwang

Yun-sung

Director Male Attorney of Law Group

MinJu



March

2019



Shareholders with over 5% Chung Mong-joon 4,202,266 25.80

National Pension Service (NPS) 1,566,487 9.62

Chung Ki-sun 831,097 5.10


*Inclusive of retired directors


82 83

HMD

BoDComposition

Shareholders


After HMD sold its entire stake in Hi Investment & Securities to DGB Financial Group on October 31, the Fair Trade

Commission notified its exclusion as an affiliate on November 27. This allowed HHI Holdings to meet requirements as

a holding company. In addition, the board of directors resolved a bonus issue on December 5, leading to an additional

listing on December 26. The revaluation reserves were the base for the 1:1 bonus, where 19,942,149 shares were

increased excluding buy back of 57,851.

Type Name No.ofShares Ratio(%)

Shareholders with over 5% HHI 16,936,492 42,40

NPS 5,188,027 12.99



Date

Internal Director Shin

Hyeon-dae

Chairman Male President & CEO of HMD - November

2018

Outside Director Kap-soon

Kim

Director Male President of tax

consulting firm TAX &

Accountants

Audit Committee, Internal Trade Committee,

Outside Director Recommendation Committee

May

2015

Lim

Jae-dong

Director Male Lawyer at Law Firm Kim

& Chang



March

2019

Kim

So-young

Director Male Professor of Economics,

Seoul National University



March

2017

Other non-

executive directors

Cho

Young-cheul

Director Male Vice President & CFO at

HHI

Internal Trade Committee, Outside Director

Recommendation Committee

March

2017


HCE

BODComposition



Date

Internal

Director

Kong

Ki-young

Chairman Male President & CEO of

HCE


2018

Song

Myung-jun

Director Male Head of Finance,

HHI Holdings


2018

Outside

Director

Sohn

Sung-kyu

Director Male Professor of Accounting,

Yonsei University



March

2019

Lee

Jeon-hwan

Director Male Advisor at Law Firm Bae,

Kim & Lee



March

2019

Shin

Pil-jong

Director Male Lawyer at Law Firm

Pyungjeon



April

2017

Hyundai Electric

BoDComposition

Shareholders


Date

Internal

Director

Jung

Myung-rim

Chairman Male President & CEO of

Hyundai Electric

Outside Director Recommendation Committee August

2018

Keum

Seok-ho

Director Male Head of Human Resources

Division, HHI Holdings


2018

Outside

Director

Song

Back-hoon

Director Male Professor of International

Commerce, Dongguk

University



April

2017

Ryu

Seung-woo

Director Male Managing Partner of

Samil PwC



March

2019

Lee

Seok-hyung

Director Male Lawyer at Law Firm Sangyung

(Executive Advisor)



March

2019




NPS 1,596,688 7.84

KCC 1,311,178 6.44


Shareholders


HCE decided on spinning off of its Parts Business Unit on December 20, 2018, and approved the plan at the regular

general meeting of shareholders on March 26, 2019. The spin-off took place on April 1, 2019, with the rest of the

business units remaining as HCE while the Parts Business Unit separated into Hyundai Core Motion.



NPS 1,530,706 7,77



84 85

Pursuing Safe and Environmentally

Friendly Business Practices

HHI Group strives to reduce the risk of workplace accidents,

improve worker safety and health, and further minimize

the environmental impact of its business operations.

1.SafetyManagement 88p

2.HealthManagement 93p

3.EnvironmentalManagement 95p

87


Safety Management

AmendmentstotheOccupationalSafetyandHealthActwillbecomeeffectivestartingfromJanuary2020,banningexcessive

outsourcingofriskyworkandreinforcingtheresponsibilityandregulationsofthecontractortopreventindustrialaccidents.

Inresponsetothis,HHIGroupismakingconcertedeffortstoestablishasafetyculturethatisbasedonprinciples,withagoal

tobecomeoneofthesafestcorporationsontheglobalstagewithmanagementpoliciesthatprioritizesafety.HHIGroupis

operatingahealthandsafetymanagementsystembasedontheglobalstandardofOHSAS18001,undertheprincipleofPDCA

(Plan,Do,Check,Action).Inaddition,wetakeresponsibilityforthehealthandsafetyofworkersbyinsertingsafetyandhealth

provisionsinthecollectiveagreementofallouraffiliates.

Management System


in Place

Major Activities and

Achievements


HHI Group operates a safety management organization that directly reports to

the CEO. In addition, the Occupational Safety and Health Committee (OSHC), which

consists of 5 to 10 members both from the management and the labor union,

convenes regularly to discuss the safety issues in all worksites and ensures the

participation of representatives of workers in worksite environment measurements

and safety event investigations. Safety and health issues covered by the Committee

are reported to the CEO. For effective safety management, relevant managers are

designated in each business division and partner. Safety meetings attended by the

Company, representatives from partners and employees are held regularly as well.

OperationofHiSEs

HHI, HCE and Hyundai Electric created a database covering a comprehensive range

from accident cases to safety training through the HiSEs (Hyundai Integrated

Health, Safety and Environment Management System). Employees can log on to the

database on site using their computer at work, internet or mobile phones, and check

the status of risky work in real time. Meanwhile, HMD operates the MIPOSS (MIPO

Safety System), which utilizes big data on the safety management of shipbuilding

yards. The system offers a checklist for safety and health, and allows the Line Safety

Controller (LSC) to share and provide feedback on risk factors identified on site

through computers or mobile phones in real time.

EnhancingOn-siteInspection

All levels of management from the CEO to the first-level supervisor frequently

conduct on-site safety inspections to eradicate risk factors. Responsible safety

management for all individuals is encouraged in order to prevent serious accidents.

In addition, safety inspections are carried out for every production process to

identify risk factors, which are improved immediately upon detection. A total of 11

items with high potential for accidents are subject to regular inspection on a bi-

monthly basis and intensive supervision.

SpotRewardsforBestSafetyPractices

Workers with excellent safety performance are rewarded on the spot in order to

build a culture where employees encourage and inspire each other to improve

safety. Immediate incentives and positive feedback are provided to motivate

employees to engage in on-site safety practices.

SafetyGoldenRulesandSafetyAcademy

HHI Group established a must set of safety rules titled Safety Golden Rules for

dangerous work that requires strict discipline, aiming to foster a safety culture

and improve safety awareness. Violators of the rules are enrolled in a two-day

program in the Safety Academy to prevent recurrence. In line with the Employee

Transformation Project introduced in 2019, HMD separately established 12

Entity Council Devotedfunction

HHI Holdings Occupational Safety and Health

Committee (5 to 10 representatives from

the management and the labor union,

respectively)

Management Support Team

HHI Safety Management Office

Hyundai Electric Safety & Environment Team

HCE Safety & Environment Team

HMD Safety Team

Category Unit HHI

Holdings

HHI Hyundai

Electric

HCE HMD

Accident rate* % 0.43 0.25 0.29 0.29 0.26

Fatalities Persons 0 1 0 0 0

Excellent

safety

activities

Spot rewards cases Cases 0 47,860 2,505 837 19,170

Reward amount KRW 1,000 0 239,000 12,525 78,707 183,898

Safety Academy attendees Persons 0 329 21 20 N/A*

Emergency drills Cases 1 54 5 3 8

Supplier safety training Cases 12 288 61 16 96

*Types include falls, trips, being pinned under and burns

*Accident rate and fatalities include those of partner companies

Vision|ACorporationPossessingtheWorld’s

HighestSafetyStandardthatPutsSafetyFirst

Objective|AchievingZeroMaterialAccident,

ImprovedAccidentRate,Zero-AccidentWorksite

SafetymanagementsystemSafetyactivitieswithactiveparticipationofemployees

SafetytrainingAccident&

emergencyresponse

̇ Establishing & operating an integrated

safety, health and environment

management system

̇ Reinforcing site inspection

̇ Inspecting safety management of

suppliers

̇ Adhering to safety rules

̇ Rewarding excellent safety activities on

the spot

̇ Safety Academy

̇ Safety discussions

̇ Safety campaigns

̇ Safety training for business partners

̇ Operating a centralized control center

̇ Emergency preparedness training and

processes

̇ In-house fire brigade

Part 3. Sustainability Performance PursuingSafeandEnvironmentallyFriendlyBusinessPractices

88 89

Important Safety Rules for the entire company. Those failing to abide by the

Important Safety Rules will be required to take the special safety training provided

by the Safety & Health Department.

SafetyTraining

Systematic safety training is offered to both technicians working in the office and

engineers working on site. In 2018, compulsory courses were provided twice a year

to department heads, team leaders, senior foremen, heads of partner firms, and

their leaders of offices and teams. Supervisors are required to receive up to 16

hours of safety training by law, and the Safety Management Office and the Business

Department provide 8 hours of training respectively.

SupportingtheSafetyManagementofPartnerCompanies

HHI Group requires business partners to appoint a safety manager in order to help

them build expertise for safety management and strengthen their autonomous

safety management system. We provide incentives during the grace period for

the autonomous system to be developed, in order to ensure smooth transition.

In addition, we created an organization dedicated to supporting the safety

management of in-house partner companies to provide job-specific training.

Activities and Achievements for Each Entity

HHI Holdings

EstablishmentofaHuman-CenteredSmartFactory

The smart factory system is designed to protect workers from jamming by applying an automated conveyor system to

the entire process to have machines assemble the robots from the initial automatic assembly stage. In addition, painting

robots are used to protect workers from paints or other harmful substances. Completed robots are transferred using

the Automatic Guided Vehicle (AGV) system, preventing industrial accidents of workers such as falling or slipping.

HHI

DiagnosisofSafetyCulture

HHI developed the HHI Safety Culture Assessment (SCA) as a tool for self-diagnosing its safety culture. The HHI SCA

evaluates the safety awareness of executives and employees on 11 major criteria required under the safe management

system. The periodic quantitative evaluation of safety awareness will be used as a benchmark for devising mid- to

long-term safety policies.

EstablishmentoftheIntegratedSafetyTrainingCenter

At the end of 2018, HHI established the largest integrated safety training center in Korea, covering an area of 3,600

square meters. It is a comprehensive educational center resembling a real work environment, where workers can learn

safety procedures for each job duty both in theory and practice. The Center plans to offer a total of 58 curriculum

programs that include compulsory courses as well as leadership sessions.

Hyundai Electric

SafetyDialogueSession

Safety dialogue sessions are held twice a year for production departments which are consistently exposed to highly risky

work. The shortage of signal personnel for getting on/off forklifts and for direct delivery were among 25 items identified

to have significant potential risk. Each item was properly dealt with: more personnel were secured for signalling jobs and

training was provided, contributing to raising safety awareness.

RiskAssessmentTraining

Risk assessment training was provided to supervisors and workers to help them preliminarily assess the seriousness and

eliminability of risk factors and harmful substances. The training program helped enhance the employees’ knowledge on

risk assessment and bolstered their capabilities for autonomous safety management, creating a voluntary safety culture.

HCE

RiskAssessmentwithActiveParticipationofWorkers

In 2018, HCE started risk assessment dialogues that require the participation of every worker, aiming to identify risk

factors and develop solutions for improvement through the eyes of workers. Activities of each production team are

evaluated on a quarterly basis to reward the team with excellent outcomes. HCE plans to select specific dialogue topics

to help workers prioritize risk factors that need to be resolved for each work situation, aiming to improve their risk

assessment abilities.

SafetyCampaigns

HCE holds the Safety Time Capsule event at the beginning of each year, in which all employees participate to seal

their individual safety pledge to a time capsule to be opened at the end of each year, as a way to renew their safety

commitment while reflecting on the achievement of organizational safety targets. The company has various other

campaigns to raise safety awareness among employees, such as zero-accident pledge and spot award for excellent

safety practices.

HMD

HumanErrorPreventionThroughBehavioralChanges

For human error prevention, HMD is shifting the focus of its safety inspections from status checks to behavior checks,

thereby inducing workers to change their behavior. In 2019, the company plans to lift safety awareness through various

programs, including virtual reality-based safety training. In addition, all employees in the production division are required to

submit their safety pledge as part of the company’s safety campaigns for raising awareness and fostering a sense of safety.


90 91

Disaster and Emergency

Responses

2019 Initiatives

HHI Group adopted an enterprise-wide disaster prevention manual in order to

protect employees and company assets from natural disasters such as typhoons

and earthquakes. Divisional emergency response teams organized under the

Corporate Disaster Prevention and Response Head Office are mobilized to promptly

respond to disasters upon occurrence, according to the level of crisis. Periodic

inspection and scenario-based drills are conducted to preemptively prepare against

emergencies that can occur at and around business sites.

IntegratedSafetyControlCenter

Our Integrated Control Center is operational 24/7 to enable real-time

communication, respond swiftly to disaster or emergency and protect business sites

across all entities. HHI introduced a cutting-edge ICT technology, utilizing motion-

detecting sensors and intelligent video analysis solutions to prevent falls into the sea

near quays. In addition, employees and safety agents received emergency response

training to ensure preventive safety management and a swift responsiveness.

Entity Goal Initiative

HHI

Holdings

Accident-free worksite

with zero major accident,

zero % accident rate

̇ Improve safety awareness through daily stretching

exercise and checkpoint meetings twice a day

̇ Make practical improvement of health environment

through regular OSHC meetings

HHI Zero major accident,

Accident rate of below

0.184

̇ Strengthen practice-oriented safety management and

familiarize workers with preventive activities

̇ Strengthen the safety education system and create a

foundation for safety culture

̇ Reinforce safety management activities of partner

companies

Hyundai

Electric

Zero major accident,

accident rate of below

0.263 (9 cases)

̇ Focus on managing high-risk tasks through regional

risk assessment

̇ Conduct special inspections on certain risks for

preventing major accident

̇ Carry out accident prevention activities for different job

categories

̇ Foster a voluntary safety culture through communication

HCE Four safety accidents or

below, Zero violation of

three major safety rules

̇ Prevent repetitive accident types

̇ Improve worker participation in risk assessment

̇ Review safety and take appropriate measures when

investing in machinery/equipment

HMD Zero major accident,

Accident rate of below

0.19

̇ Implement differentiated safety management for

different types of ships

̇ Project for changing the mindset of employees

̇ Creating a safe work environment

Health Management

Withtheaimofestablishingahealthyworkplace,wesupportmedicalcheckupsandmedicalexpensesforemployees,

andprovidein-housemedicalservicessuchasthehealthpromotioncenter,orientalmedicineclinic,andmindgarden

center.Weengageinvariousthehealthpromotionactivities,includingprogramsforpreventingmusculoskeletaland

cardiovasculardiseases,whilecontinuouslyimprovingtheworkconditionsbyselectingproperpersonalprotective

equipmentandmanagingchemicalsinasystematicmanner.

Key Support and Facilities MedicalExaminationandExpenseSupportSystem

HHI Group provides a medical examination every year, and for workers whose tasks

are exposed to noise, harmful rays, metals, and organic compounds, we conduct

a special checkup. The Group also offers comprehensive medical testing to long-

serving employees and senior employees and customized follow-ups as needed. We

also support the medical expenses for heart disease and incurable diseases (cancer

and leukemia) of an employee or his or her family member, and provide health

allowances and convalescence leave.

HealthPromotionCenter

HHI Group runs health promotion centers at worksites to improve employee health

and help the injured recover quickly. HHI Group also provides qualified medical care

in a timely manner, equipped with a clinic, a health care center, a physical therapy

room, a rehabilitation center, and regional medical offices.

OrientalMedicalClinic

HHI Group runs its Oriental Medical Clinic with 20 beds to treat musculoskeletal

pains such as backache and shoulder discomfort with acupuncture, moxibustion

and cupping.

MindGardenCenter

HHI Group runs a counseling center that offers specialized services including

psychological testing, collective counseling, and collective psychological training,

as well as a program to help employees recover from disasters for psychological

treatment after industrial accidents.

SupportforOutsideRehabilitation

In order to help employees recover from an industrial accident in a fast and

healthy manner, the company provides various outside rehabilitation programs in

connection with Hanmaum Center.

SmokingCessationClinic

HHI Group runs a smoking cessation clinic to encourage employees to quit smoking,

providing expert counseling.


92 93


Major Activities and

Achievements

2019 Initiatives


Medical service* Cases 24 50,671 4,130 1,795 32,130

Smoking Cessation Clinic

participants

Persons N/A 96 21 N/A 95

Obesity Program

participants (Success rate)

Persons

(%)

N/A 100(67) 18(44) N/A N/A

*Visits to oriental medical clinic, in-house hospital or health promotion center

Entity ActivitiesandAchievements

HHI

Holdings

̇ Operate in-house health and physical fitness centers

̇ Expand the scope of flu vaccination support

̇ Provide health promotion activities where employees participate (work

environment measurement, musculoskeletal disease)

HHI ̇ Disease prevention program

̇ Obesity control program

̇ Health promotion program (Smoking cessation clinic, health promotion desk)

Hyundai

Electric

̇ Implement obesity program and reward for exemplary practices

̇ Encourage the use of stairs and reward for exemplary practices

̇ Distribute “Health! Hyundai Electric” email

̇ Conduct follow-up consultation for suspected cases of illness

̇ Smoking cessation clinic

HCE ̇ Limit work hours for high-risk groups identified in health examinations

̇ Prevent/manage diseases through health counseling

HMD ̇ Evaluate risk of developing cerebrovascular disease

̇ Operate health promotion programs (Smoking cessation clinic, health

promotion desk

̇ Operate preventive care programs (Musculoskeletal disease, work stress,

noise-induced deafness)

Entity Goal Initiative

HHI

Holdings

Promoting

preventive activities

̇ Maintain fitness center (Gym) and its facilities

̇ Operate A/C (Cooling and heating) at the worksite

̇ Support in-house health promotion clubs

HHI Strengthening

prevention activities

for work-related

diseases

̇ Systemize health examination and follow-ups

̇ Improve chemical management system

Hyundai

Electric

Reducing obesity

rate below 43%

̇ Investigate/improve risk factors of musculoskeletal disease

̇ Prevent hearing problems by using hearing protection

tight fitness tester

̇ Reward for people frequently using stairs

̇ Distribute “Health! Hyundai Electric” email

HCE Guaranteeing

employee rights to

health, with a focus

on prevention

̇ Investigate musculoskeletal strain factors and implement

remedies

̇ Engage in health promotion activities for three major

diseases (high blood pressure, diabetes and hyperlipidemia)

HMD Healthy employees!

Healthy workplace!

̇ Develop warning signage system

̇ Prevent heat/cold-related health problems

̇ Implement chemical DB for each process

Environmental Management

Bothathomeandabroad,regulationsaretighteningonpollutantsandamendinglegislationinresponsetowidening

globalinterestonenvironmentalissuessuchasfinedust,greenhousegas(GHG)andrecycling.Amidsuchtrend,

HHIGroupismanagingpollutantswithanenvironmentalmanagementsystemestablishedaccordingtoglobalstandards

(ISO14001),withtheobjectiveofbuildingareputationasaneco-friendlycompany.Inparticular,company-wideefforts

aremadetoreduceGHGemissionsinalignmentwithKPIs,focusingonreducingitscarbonfootprintontheenvironment.

Management System

Acquisition of

Environmental Management

System Certification

(ISO 14001)

HHIHoldings

accredited in

2017

HHI

accredited in

1997

HyundaiElectric

accredited in

2017

HCE

accredited in

2017

HMD

accredited in

2012

Objective|Solidifyingourstatusasan

eco-friendlybusiness

Guiding Policy|Environmentalpollutionpreventionand

efficientresponsetorelevantregulations

ResponsetoEnvironmentalLawsandRegulations

EnvironmentalPollutionPrevention

Environmentally-consciousActivities

̇ Defining regulatory response

̇ Responding to strengthened Clean Air Conservation Act

̇ Responding to GHG emissions trading scheme

̇ Establishing chemical regulatory response system

̇ Analyzing environmental regulatory trends

EstablishmentofInspectionSystem

̇ Establishing emergency contact system

̇ Conducting inspections regularly

EnvironmentalPollutionPreventionTraining

̇ Providing training for personnel handling hazardous

chemicals

̇ Training on marine pollution prevention

Participationincommunityenvironmentalclean-upactivities

̇ Participating in cleanup activities regularly

̇ Participating in and supporting local environmental events

Responsetoenvironmentalinformationsystems

̇ Effectively responding to Environmental Information

Disclosure System

̇ Participating in ESG evaluation


94 95

Energy and GHG-related


Category Unit HHIHoldings1 HHI HyundaiElectric HCE HMD

Energy cost savings in 20182 % N/A 14.5 16.7 39.9 6.7

Energy Management System

GHG Management System

Major Climate Change

Risks and Opportunities

Based on the global standard of ISO 50001, HHI Group established an energy

management system to monitor energy consumption and reflected the reduction

amount into performance indicators of the department in charge of energy

management. In order to promote efficient energy management, our Factory

Energy Management System (FEMS) based on big data is utilized to optimize energy

consumption for each factory, while our Energy Storage System (ESS) manages peak

power. HHI Group adopted an energy-saving system that sends messages to each

department when the gross energy consumption of factories exceeds a certain

level. Also, each department designates an energy manager who is responsible

for the education and knowledge-sharing of energy-saving activities, which helps

create a voluntary culture of cutting energy consumption.

ResponsetotheEmissionsTradingScheme

Ever since the introduction of the emissions trading scheme in 2015, designated

companies are mandated to comply with the GHG emission level set for each

HHI Group established the HHI Greenhouse Gas Management System (HGMS) in 2015,

which calculates GHG emissions based on the IPCC global standard and Korea’s GHG

calculation guideline. The HGMS monitors every GHG emitting facility found in offices,

factories and research centers of the Group to manage the emissions of six greenhouse

gases*. The calculations from the system are subject to stage-by-stage verification from

a third party, in order to ensure accuracy.

*CO2, CH4, N2O, HFCs, PFCs, and SF6

1 HHI Holdings is not subject to mandatory filing of GHG emissions data.

2 Energy and GHG data are calculated in accordance with the “Guidelines for Operation of

Greenhouse Gas Energy Target Management Systems.”

3 Differences are made as decimal points were subtracted for each site.

1 HHI Holdings’ plant to be completed in 2019.

2 Energy cost savings in 2018 = (Energy cost target for 2018 – Actual energy cost for 2018) /

Energy cost target for 2018

EnergyCostSavings

Category Unit HHIHoldings 1 HHI HyundaiElectric HCE HMD

Energy

consumption

Fuel TJ 7 2,730 166 130 637

Electricity TJ 32 5,895 593 276 2,094

Total2 TJ 39 8,617 757 405 2,726

Energy savings KWh 0 3,731,213 339,450 414,275 1,299,848

GHG

emissions

Direct

(Scope 1)

tCO2e 392 207,527 8,725 8,371 44,678

Indirect

(Scope 2)

tCO2e 1,572 286,366 28,820 13,416 101,710

Total3 tCO2e 1,965 493,885 37,543 21,784 146,381

company. Among the entities within HHI Group, HHI, Hyundai Electric, HCE (starting

from 2019) and HMD have been designated for compliance. In the case the company

exceeds the GHG emission level, it has to borrow the emissions allowance from

another year within the designated period or purchase them from the emissions

trading market. Each of the designated entities in HHI Group is making efforts to

abide by the scheme and secure excess allowances by investing into energy-saving

facilities and developing high-efficiency equipment.

IMOShipRegulations

Effective from January 1, 2020, the IMO plans to enforce strict regulations that

significantly lower the global Sulphur cap on fuel content from the present 3.5% to

0.5%. In response, shipping companies all over the world are installing scrubbers

into existing ships or switching to LNG-fueled ships. As a result, orders for LNG

carriers, which are flagship products of HHI Group, are on the rise, which will in turn

lead to the Group’s revenue growth.

Energy and GHG Control Activities by Entity

HHI Holdings

HHI Holdings is planning energy saving by replacing metals used in the Daegu business site with high-efficiency LED

lights. The company will also apply high-efficiency inverters to line-start motor in plants and expect that the application

of high-efficiency inverters to conveyor motors will lead to around 40% of energy consumption reduction, equipment

efficiency increase, and noise reduction.

HHI

HHI is implementing measures to reduce energy consumption such as identifying real-time energy usage through remote

heating and cooling control. The company has replaced metals (250kW, 400kW) and other light bulbs in plants with high-

efficiency LED lights, thereby reducing GHG and cutting down maintenance cost. In addition, the company is carrying out

energy saving activities such as taking part in the Demand Response (DR) project run by the Korea Power Exchange. In

2018, we successfully saved KRW 290 million in electricity costs, with 10MW worth of energy capacity in total.

HCE

In attempts to reduce electricity usage, one of the key sources of GHG emissions, HCE is making electricity conservation

efforts a way of life such as cutting off standby equipment power supply, turning off lights when not in use, etc. The

company replaced plants’ exterior lights with high-efficiency LED lights and installed flow meters of shielding gas and

digital welding machines of casting bed in order to reduce energy consumption.


96 97

Green Factory Activities

and Achievements

Environmentally Friendly

R&D Activities by Entity

HHI

HHI developed on independent rectangular scrubber that can be installed on the outer wall of a chimney. The strengths

of this scrubber equipped with a hybrid emission system of cleaning water are that it complies with emission regulations

of IMO and other countries. Furthermore, while performance is equivalent to that of European products, the size is

reduced by about 30% with its square and integrated-with-ship body design.

Hyundai Electric

The company developed technologies for insulation and cooling design enabling change of insulating oil of transformers, the

company’s key product, from mineral oil to vegetable oil upon the client’s request, thereby reducing soil and water pollution.

The company is also contributing to preventing global warming with its Eco Gas Insulated Switchgear (EGIS) which does not

use any GHG (SF6) by applying eco-friendly insulation medium, dry air.

HCE

HCE developed, together with Cummins, a US engine maker, 3.5-ton small-sized all-electric excavator for the first time

in Korea. Although this electric excavator displays performance that is equivalent to that of existing diesel engine

excavators, it emits no exhaust gas, generates less noise, and is an environmentally friendly product saving up to 60% of

fuel cost. The company will continue to actively respond to market circumstances and clients’ needs by investing in R&D

for smart excavators.

HMD

HMD introduced an eco-friendly vessel technology “LNG dual fuel supply system,” which can use both bunker C oil and

LNG, for the first time in Korea, as well as eco-friendly ships where a cutting-edge material, high manganese steel, is

applied to LNG fuel tanks for the first time globally.

HHI and Hyundai Electric are carrying out green factory activities that contribute to

GHG emission reduction by building new renewable energy generating units such

as waste incineration facilities, wind turbines, solar panels, etc. within plants and self-

spending and selling energy generated from those units. The company intends to

expand the green factory movement to all entities of HHI Group going forward.

HHI Group is making its best efforts to develop products that comply with global

environment standards including regulations for the prevention of air pollution

from ships of IMO and regulations for emissions from heavy equipment of the US.

In addition, in order to maintain competitive edge in an increasingly eco-friendly

market, activities for developing environment-friendly technology are implemented.

Facility Size Energy

produced

Unit Entity

HHI HyundaiElectric

Waste incineration* 150tons Steam Ton 71,074 N/A

Wind power 1.65MW Electricity MWh 2,462 N/A

Photovoltaic 500kW Electricity MWh N/A 593

GreenFactoryStatus

*All wastes generated from production processes such as paper, textile, wood, plastic and

rubber are incinerated.

HMD

HMD has improved energy efficiency by opening and running 10MW-level ESS center in July 2018. The company is

constantly implementing energy-saving efforts such as expanding the application of a painting equipment remote

control system and gradually changing to high-efficiency LED lightings.

Air Pollutant Control

Activities

HHI Group has built and is running optimum air pollution prevention facilities to

protect air quality. In order to minimize the emission of air pollutants, the Group

established internal environmental standards, which are 50% (70% for HMD) stricter

than statutory allowance level.

* HHI Holdings, categorized into type 5 air pollution worksites group, does not own facilities

subject to self-assessment.

Air Pollutant Control Unit HHIHoldings HHI HyundaiElectric HCE HMD

Dust kg N/A 55,610 6,500 7,590 12,300

NOx kg N/A 719 100 0 0

SOx kg N/A 0 0 0 0

HHI Holdings

Daegu plant self-assesses the air pollution levels every six months to ensure the levels do not exceed the allowable

concentrations. Facility operating hours (h/day) are also captured in the relevant log to make the emissions data traceable.

HHI

Amid increasing attention on fine dust reduction of late, HHI signed a voluntary agreement for fine dust reduction

(2018-2022) in October 2018 with 30 companies based in Ulsan Nakdong River Basin Environmental Office, and Ulsan

Metropolitan City. HHI established reduction plans by year to achieve the agreement goal of 40% reduction of fine

dust emissions by 2022 from the 2014 level and is committed to implementing the plans. As part of these efforts, the

company plans to build air pollution prevention facilities within large-scale painting factories of 50,000m3 and over from

2018 to 2022 in accordance with Management Hazardous Air Pollutants (HAPs) and Fugitive Emissions. At the end of


98 99

Wastewater and Water

Pollutant Control

Unit HHIHoldings 1 HHI 2 HyundaiElectric 3 HCE HMD

Wastewater Ton N/A 3,849 455 5,754 1,247

BOD4 kg N/A 20 N/A 180 6

COD5 kg N/A 24 N/A 560 6

SS6 kg N/A 8 N/A 10 7

Wastewater and Water

Pollutant Control Activities

HHI

HHI requests water quality analysis for each discharge facility on a quarterly or semiannual basis to conduct study on

specific water pollutant discharge amount taking place from 2018. The company calculates the output within the business

based on the analysis results and is striving to reduce wastewater discharge, focusing on wastewater source control.

Hyundai Electric

Hyundai Electric has installed wastewater collection tanks at each wastewater discharge process. The treatment of

wastewater is 100% outsourced. The company self-checks major wastewater discharge sources in an effort to prevent

external leakage incidents.

HCE

Wastewater generated mostly from car washing and painting facilities is processed at the company’s in-house effluent

treatment plant, in which water quality is monitored regularly for the efficient operation of the plant. Wastewater control

efforts are focused on minimizing the amount of wastewater discharge based on source-management.

HMD

The company runs an in-house wastewater treatment plant to physiochemically treat wastewater discharged within the

business site and has various programs in place for water pollutant control such as real-time monitoring and regular

checkup on effluent quality.

Hyundai Electric

In order to control specific hazardous substances for air quality, the company regularly identifies raw materials of chemicals

used in production processes and self-assesses every month the pollutants emitted. By regularly replacing activated charcoal

filter, the company is controlling specific air pollutants below the legal threshold of 10%, and is also exploring various

measures like facility investments and working method improvement to address oil mist odor caused by vacuum drying.

HCE

As part of efforts to reduce fine dust which has become a national issue, HCE is operating a vehicle that circles around

the site to absorb dust for cleaning. The company is regularly (at least monthly) replacing pre-filters of prevention

facilities to increase dust collection efficiency.

HMD

From 2018, HMD has been building prevention facilities to reduce the emission of volatile organic compounds, and will

gradually complete the setup by 2022.

HHI Group employs 50% stricter internal environmental standards for effluent

discharge from wastewater treatment facilities than legal requirements. Wastewater

released from the business site is legitimately treated in the wastewater treatment

plant within the site and by outsourced vendors. Wastewater self-treated by

HHI, HCE and HMD within their business sites is discharged into the wastewater

treatment plants located in Bangeojin and Yongyeon in Ulsan.

1 No registration/license for wastewater discharge facilities as the business does not produce

wastewater

2 Based on HHI’s main yard in Ulsan

3 Hyundai Electric outsourced entire wastewater treatment

4 Biochemical Oxygen Demand

5 Chemical Oxygen Demand

6 Suspended Solids

2018, HHI completed the establishment of prevention facilities that take up 10% of total capacity of 50,000m3 large-scale

painting factories as per legal requirements.

Waste Management HHI Group aims to achieve zero waste through waste amount reduction every year.

All waste is incinerated at our facilities, or treated by outsourced general/designated

waste disposal service providers. We track our waste output in the government-run

system at every disposal and monitor the disposal processes by maintaining a log.

Waste amount is reported every year, and disposal and reporting are recorded in

the log.

Unit HHIHoldings HHI HyundaiElectric HCE HMD

General

waste

Reclamation Ton - 1,781 1,065 88 368

Incineration Ton - 27,475 179 825 8,847

Designated

waste

Reclamation Ton - 147 51 - -

Incineration Ton 10 1,873 129 59 399


100 101

Recycling of Byproducts

Chemical Substance

Management

Waste resources generated from production site such as scrap metals, waste wood,

waste paint cans, etc. are recycled. Multi-faceted efforts are made to lower the

reclamation/incineration rate and raise the recycling rate of the outsourced waste.

HHI Group strictly manages the entire process of chemical substances usage from

warehousing to disposal to ensure the health and safety of employees, partners,

customers and community members. Inspections on chemical substance-related

facilities and equipment as well as relevant trainings are regularly conducted, and

worksites are required to have Material Safety Data Sheets (MSDS) on-site.

Unit HHIHoldings HHI HyundaiElectric HCE HMD

Recycling rate % 93 85 80 78 66

구분 Unit HHIHoldings HHI HyundaiElectric HCE HMD

Investments KRW 100 million N/A 355 11.2 1.4 63

HHI Holdings

All chemicals used by HHI Holdings including urethane, hardener, diluent, detergent, and cleaners from the painting

facilities are safely kept in the on-site storage facilities. Considering the impact on health and safety of local community

residents, all chemical waste is reported to the environmental authorities and properly discharged as designated waste.

Hyundai Electric

Hyundai Electric is currently developing a purchase system for managing chemical substances and is making its best

efforts to prevent chemical accidents based on thorough management from purchase to disposal.

HMD

In an effort to safely manage chemical substances, HMD is implementing various measures such as building and

monitoring a chemicals management system, and developing eco-friendly paints.

HHI

Amid strengthened regulations on chemical substances, HHI established chemicals purchase procedures and management

system in order to legitimately treat chemical substances. For chemical products that are purchased, warehoused, or used,

the ones subject to regulations are identified at the purchase estimate stage, and either these are replaced with substitutes

or formal permission/approval is acquired. Furthermore, our database of chemicals subject to regulations is maintained up-

to-date, and a complete survey on all chemical substances treated is conducted, thereby enhancing the fundamentals of

chemical substances management. As part of its efforts to actively participate in chemical substance discharge reduction, HHI

is also identifying amount of chemicals used in business sites versus the amount discharged into environment.

On-site Due Diligence/

Regular Inspection

Environmental Investment


2019 Initiatives

Regular on-site checkups are conducted to ensure proper operation of

environment-related facilities within business sites including air pollutant discharge

and prevention facilities, wastewater discharge facilities, facilities inducing soil

pollution, waste paint storage site, hazardous chemicals treatment facilities, etc.

Facilities generating environment pollutants and inducing marine pollution are

checked every day and recorded in a log. When issues are found, measures are

immediately taken in collaboration with relevant departments.

HHI Group continues to make investments in environmental management in order

to minimize our businesses’ environmental impact. In 2018, in particular, massive

investment was made in air pollution prevention as prevention facilities were set

up in two large-scale painting factories (one in the main yard and the other in the

offshore plant yard) of 50,000m3 and over. The technology of these prevention

facilities is Catalytic Oxidation (CO) which reduces Volatile Organic Compounds

(VOCs) produced in painting factories. This technology helped significantly lower

maintenance cost and reduce installation area compared to Regenerative Thermal

Oxidizer (RTO) normally installed in existing painting facilities by applying microwave

system and disassembling VOCs to water and CO2 using a catalyst.

Goal Initiative

HHI

Holdings

Safe and eco-friendly

management

̇ Focus on eco-friendly production activities

̇ Comply with environment regulations by

strengthening monitoring

̇ Strengthen separate garbage collection activities

HHI Building foundation for eco-

friendly business

̇ Strengthen environmental pollution prevention

activities and conduct more practical eco-friendly

activities

Hyundai

Electric

Zero legal/regulatory violations ̇ Conduct activities of environmental pollution

prevention/compliance with regulations

̇ Reduce GHG emissions

̇ Conserve local environment

HCE Zero legal violations through

the implementation of an

environmental management

system

̇ Maintain air vent pollution level up-to-date

̇ Minimize law violations through training,

targeting environmental facility operators

HMD Change in safety, health,

environment paradigms

̇ Respond to environmental laws and regulations

̇ Reduce GHG emissions

̇ Enhance waste recycling rate


102 103

Promoting Strong Labor Relations

Built on Mutual Respect and Trust

HHI Group establishes a win-win corporate culture through

continuous communication. We aim to create shared value by

promoting trust in industrial relations and shared growth with

our business partners.

1.Labor-ManagementRelations 106p

2.Learning&Development 109p

3.EvaluationandCompensation 114p

4.Employees’QualityofLife 116p

5.SharedGrowth 119p

105


Labor-Management Relations

HHIGroupstrivestoestablishsoundbusinessethicsandadvancedlabor-managementrelationsrootedinrelatedlaws

andregulations.Weunderstandthelaborunionisanimportantpartnertothemanagementandendeavortopromote

cooperativegrowthbetweenthelaborandthemanagementbasedonmutualrespectandtrust.

Collective Bargaining and

Labor-Management Council

Meetings

Major Labor-Management

Issues


Efforts to Promote Internal

Communication

HHI Group holds Labor-Management Council meetings at each entity level to

discuss the improvement of employees’ working conditions and welfare on a regular

basis. For better working conditions, we renew collective bargaining agreements

biennially and have wage negotiations annually. In 2018, each entity renewed its

collective bargaining agreements with wage negotiations and Labor-Management

Council meetings held as scheduled.

Some media reported suspicions on HHI’s intervention in labor union activities in

2018, and related investigation is underway to establish the facts. The suspicions

posed the need to improve labor-management practices and related organizations.

As part of the efforts, HHI reorganized its labor-management organization and

assigned the minimal functions required by laws (e.g. collective bargaining and

labor-management council). HHI will put forth continuous efforts to build future-

oriented labor-management relations based on mutual growth and cooperation.

ManagementStatusBriefing

HHI Group holds regular management status briefings for employees and labor

union members to build a consensus on the need to overcome the crisis and

improve competitiveness, as well as to foster an ownership mentality in employees.

Under the collective bargaining agreement, each company is obliged to inform the

labor union of major management changes with different deadlines by case. For

example, HHI is required to notify the union members of changes to their working

conditions at least 40 days before the changes take effect. HMD has the duty to give

a 60-day notice to the union members about important changes such as business

suspension or shutdown, spin-off/merger, and factory relocation. In 2019, HHI Group

plans to increase the number of briefings to share the current management status

with employees more frequently and strengthen their commitment to achieving

business goals.

DialoguewiththeManagement

HHI Group organizes meetings between employees and executives to establish

a healthy corporate culture through effective internal communication. Business

representatives, chiefs of the headquarters and heads of divisions participate in the

meetings to explain corporate policies and direction, while employees are given the

opportunity to suggest ideas for further development of the company.

MonthlyTeam-BuildingMeetings

In order to improve the working environment and welfare, department heads and

managers hold monthly meetings with team members. Regular communication

helps enhance job satisfaction by resolving employees’ concerns and grievances

and build a culture of trust.

PublicationofNewsletters

HHI Group publishes newsletters on a regular basis to deliver company news and

employees’ stories. HHI sends ‘HHI Family News’ once a week. Biweekly newsletters

include Hyundai Electric’s ‘Hyundai Electric News,’ HCE’s ‘HCE News,’ and HMD’s ‘HMD

News.’ HHI Holdings publishes a monthly newsletter called ‘Hyundai Robotics News.’

These newsletters serve as the central hub for information and communication.

FamilyEvents

HCE has invited the families of its employees to the Ulsan plant for the family month

event for two consecutive years since the spin-off. Through this event, the company

aims to boost employee loyalty and promote harmony and friendship among all

employees and their families. It also holds various events, including spring/autumn

pep rallies and foot volleyball competition, to enhance communication and

cooperation. HMD provided a company tour for the families of employees in the

second half of 2018 to create a sense of belonging and facilitate communication.

The tour included the screening of a promotional film, photo shoot, yard tour, and

souvenirs.


Collective

Bargaining

Rate of Eligible

Employees

% 100 100 100 100 100

Labor

Union

Eligible

Employees

Persons 140 8,668 1,325 684 2,090

Union

Members

Persons 106 8,541 1,256 659 2,090

Rate of Union

Membership

% 75.7 98.5 94.8 96.3 100

Labor-

Management

Council

Sessions Persons 3 4 4 4 4

Proposals

Submitted

Proposals 23 40 39 37 21

Labor

Relations

Training*

Training Sessions 2 3 2 2 31

Participants Persons 9 1,492 135 106 2,922

Management

Status Briefing

Sessions Sessions 2 4 1 4 3

* New recruits training, team leader training, position level training, manager training,

junior board, master board, management strategy seminar, etc.

Part 3. Sustainability Performance PromotingStrongLaborRelationsBuiltonMutualRespectandTrust

106 107

Education on

Labor-Management

Relations

Operating System


2019 Initiatives

LaborRelationsTraining

HHI Group provides labor relations trainings to help employees understand the

importance of sound labor-management relations and reinforce communicative

capabilities. The trainings focuses on building a culture of communication and

strengthening the leadership of managers based on the recognition that healthy

corporate culture and leadership are required for win-win labor relations. Seven

courses are offered, including various internal programs, organizational culture

camps, and external training programs.

MentoringProgram

HHI Group operates a mentoring program for employees to help them enhance

their job competencies, adapt to organizational culture, and maintain a work-life

balance. The one-on-one mentor and mentee relationships between junior and

senior employees contribute to developing job skills of junior staff and promoting a

voluntary cooperative culture.

OrganizationalVitalityEducation

HHI Holdings plans to provide organizational vitality education for all employees

to strengthen communication, harmony and cooperation between individuals and

divisions. HMD held an overnight program on organizational vitality for production

workers in the first half of 2018 and for office workers in the second half. The

program provided various activities such as empathy talk, team painting and trust

building to help activate the organization and promote internal communication

based on trust in co-workers and self-reflection.

Entity Initiative

HHI

Holdings

̇ Build an advanced labor-management culture

̇ Strengthen communication and teamwork through organizational vitality

education to achieve 2019 business goals and mid-to long-term vision

HHI ̇ Stabilize labor-management relations and foster an effective working culture

Hyundai

Electric

̇ Reach a consensus on the need to overcome the crisis and turn profitable

̇ Instill a sense of shared destiny through communication and cooperation

HCE ̇ Establish an organizational culture of coexistence based on communication and

cooperation

̇ Labor and management to drive CSR activities as a community-friendly company

HMD ̇ Create a virtuous circle of healthy organizational culture and win-win labor

relations

̇ Achieve dispute-free collective bargaining for the 23rd consecutive year

Learning & Development

HHIGroupendeavorstosecurebusinesscompetitivenessandsuccessthroughemployeecompetencyenhancement

focusedonnurturingnext-generationleaders,convergencetalents,job-specificspecialists,andglobaltalents.

Itemphasizestheimportanceofcontinuousself-developmentandprovidesopportunitiestoimprovejob-related

capabilitiesforemployeesatthegroupandaffiliatelevels.

Indicator Unit HHIHoldings HHI HyundaiElectric HCE HMD

Participants in

Training

Persons 443 16,802 402 680 15,228

Total Training

Hours

Hours 13,006 427,816 25,184 26,284 112,205

Training Time per

Employee*

Hours/

Persons

35 29 10 18 36

Investment in

Training

KRW

10 million

16 343 2 6 126

HHIGroup’sManagementObjectives

CompetitiveTalentNurturingSystem&TrainingInfrastructure

NurtureleadersfortheGroup’sfuture

Fosterjob-specificspecialistscontributingtocorporateperformance

Cultivateglobaltalentswhowilllead

overseasbusinesses

Helpdeveloppersonalitiesfitforhealthycorporateculture

Coretalents On-siteworkersCandidatesforexpatriatesandoverseascorporationheads

Allemployees

̇ Improve the leader (executive/

manager) training system

̇ Develop/conduct leadership

enhancement course

̇ Develop/conduct on-the-job

training (OJT) courses

̇ Build diagnosis-based

personalized capacity-building

system

̇ Support job training program of

partners

̇ Establish the system to nurture

talented expatriates and overseas

corporation heads

̇ Develop internal intensive language

training courses

̇ Strengthen basic knowledge

programs (for the newly hired and

promoted employees)

Objective

Target

Task

*Training Time per Employee = Total Training Hours / Number of Employees


108 109

Common Training

Programs

HHI Group has developed training programs to help all employees in various

positions harness their full capabilities at their job. It focuses on developing job

training courses by hearing the actual needs of departments and helping them

develop training courses and foster instructors themselves. The developed courses

contribute to improving job performance through autonomous education.

DevelopmentofJobTraining

HHI Group focuses on developing job training courses by hearing the actual needs

of departments and helping them develop training courses and foster instructors

themselves. The developed courses contribute to improving job performance

through autonomous education.

NurturingofConvergenceTalents

HHI Group has newly introduced a program to nurture convergence talents

with consilience competency and business insights. The program helps talented

employees with humanities/business majors to learn engineering basics and

provides cross-education for electricity/machinery engineers.

Diagnosis-basedLearningSystem

The role of leaders is getting more important to flexibly respond to rapidly-changing

business conditions and efficiently manage the organization. As such, HHI Group

has established leadership capabilities required for each position. The managers are

assessed for such capabilities and receive feedback every year. In 2018, the advanced

leadership course was newly developed to provide training based on diagnosis results,

allowing managers to consider which capabilities they should maintain or improve.

Program Description

Fostering leaders 5-phase HLC course, junior board, master board, junior master board,

newly-appointed manager training, leadership development program

Nurturing of

convergence talents

Engineering education for humanities/business graduates,

electricity-machinery cross-training

Job expertise

program

Collective specialist training, on-job vocational training, night-time

vocational training, consortium training, online training, book reading

program

New hires training Onboarding training for new/experienced employees, mentoring program

Nurturing of Global

Talents

Expatriates nurturing program, overseas corporation head candidate

training

KeyActivitiesin2018

Entity KeyActivities

HHI

Holdings

̇ Provided sales representatives with financial support for language training

HHI ̇ Established group-wide training plan and execution process

̇ Operated convergence talents training courses and job rotation

̇ Improved the screening and training process for expatriate candidates

Hyundai

Electric

̇ Conducted ‘Customer Satisfaction Training’ to improve customer

service quality

̇ Introduced language courses and OJT (at overseas corporation) for expatriate

candidates

HCE ̇ Strengthened early onboarding process for new hires through OJT improvement

(education on products/technologies and field training)

̇ Supported language education and opened internal courses (English, Chinese,

etc.)

̇ Built Ulsan Technology Training Center for systematic global production support

HMD ̇ Conducted organizational vitality education to build a consensus to overcome the

crisis through communication

̇ Operated job training courses and provided support for external education

Program Unit HHIHoldings HHI HyundaiElectric HCE HMD

Fostering leaders Persons 2 132 21 11 63

Nurturing of convergence

talents

Persons 0 16 4 2 3

Job expertise program Persons 11 858 30 31 416

New hires training Persons 31 614 53 46 78

Nurturing of global talents Persons 1 35 25 18 0

Other programs Persons 5 1,372 75 48 280

Rank RequiredforNew FosteringLeaders Nurturingof

ConvergenceTalents

JobExpertise

Program

NurturingofGlobal

Talents

Others

Executives New executives HLC V Special lecture for

executives

Senior

Officer

Technical

Master

HLC IV Leadership

development

program

New Dept.

Head

̇ Collective specialist

training

̇ On-job vocational

training

̇ Night-time

vocational training

̇ Consortium

training

̇ Online training

̇ Book reading

program

̇ Language training

for candidates of

expatriate roles

and overseas

corporation heads

̇ OJT at the overseas

business locations

̇ Training

to support

retirement

planningSenior

Technician

HLC III ̇ Engineering education

for humanities/

business graduates

̇ Electricity-machinery

cross-training

̇ Business

administration training

for engineers

New Team

LeaderOfficer HLC II

M/B New Senior

ForemanTechnician HLC I

J/B

Seasonal gathering

event for learning,

adaptability training

M/B

New Hires M/B

Mentoring Jr. M/B

Onboarding training

for new/experienced

employees and meister

high school graduates

Detailed Curriculum for Each Training Program

Key Activities and

Achievements


110 111


HHI

Holdings

̇ Strengthen next-generation leader/executive training system

̇ Reinforce convergence talent training program and expand job rotation

̇ Improve the quality of onboarding training by establishing a systematic education

system for new hires

HHI ̇ Continue to expand the participation of affiliates through the qualitative

improvement of group-wide talent nurturing system

̇ Enhance achievements by establishing a mid-to long-term operation plan for

leadership courses

̇ Check/improve HR development system for better work efficiency

Hyundai

Electric

̇ Boost technological competitiveness by reinforcing design/research workforce

̇ Strengthen next-generation leader/executive training system

HCE ̇ Reinforce training for expatriate candidates by selecting experts on each region

(OJT at overseas corporation)

̇ Strengthen organizational vitality and communication across ranks

̇ Operate specialist training courses and provide more support for self-driven

learning

HMD ̇ Strengthen managers’ capabilities and foster potential leaders

̇ Nurture specialists for new vessel types

̇ Instill a spirit of change and innovation

Evaluation and Compensation

HHIGroupisoperatingatransparentandobjectiveperformanceevaluationandcompensationsystemtoassess

employees’effortswithfairness.Variousrewardsareprovidedtomotivateemployeesandpromoteasenseof

achievementinapositiveworkenvironment.

Evaluation System


HHI Group conducts performance evaluation on every employee in the first and

second halves of each year. The results are used when making decisions on

promotion, compensation, training and leader selection. Regular performance

management throughout the year provides basic data for evaluation. Employees’

performance and capabilities are evaluated comprehensively. The persons holding

positions of department/team head or higher are subject to the Management

by Objectives (MBO) process and evaluated for actual achievements. HCE applies

the MBO system to all employees. Multi-dimensional leadership diagnosis is also

conducted once a year to produce preliminary data used to assign positions.

EvaluationProcess

Step1

Set

management

goals

Set management

goals based

on business

plan and job

responsibility

Headofdivision

andabove

Step2

Select

evaluation

managers

Select 1st & 2nd

level evaluation

managers and

coordinator

Step3

Self-evaluate

Self-evaluation

by employee

Step4

1st&2nd

round

evaluation

Evaluation by

1st & 2nd

evaluation

managers

Step5

Calculate

ratings

Calculate ratings

based on 1st &

2nd evaluation

results

Step6

Adjust

ratings

Adjustment of

final ratings by

coordinator

(through

consultation

with 1st & 2nd

evaluation

managers

Step7

Disclosethe

resultand

makegrievance

appeal

Enhance

fairness and

transparency

through result

disclosure

and grievance

appeal

* Exclusive of employees newly hired, on leave, or scheduled to retire

*HCE applies STEP 1 to all office workers.

Category Unit HHI

Holdings

HHI Hyundai

Electric

HCE HMD

Percentage

of employees

evaluated for

performance*

Male Knowledge workers % 91.7 97.8 95.8 100 98

Production workers % 93.2 85.2 93.5 90.8 92.3

Female Knowledge workers % 81.3 93.5 87.6 96.3 90.9

Production workers % N/A 62.2 92.3 N/A 100

Wages KRW 100

million

270 11,828 2,506 1,196 2,359


112 113

Compensation System

Reward Policy

2019 Initiatives

HHI Group reflects inflation rates in salary settlements to help its employees

lead a stable life. The persons in managerial or higher positions are subject to a

performance-based salary system that provides different compensation based on

the evaluation of personal/organizational performance. Assistant managers and

below positions receive a bonus, merit pay, incentive and allowances for birthdays

in addition to their monthly salaries. The same standard is applied to the male and

female employees for equality.

Under the principle that every achievement should be rewarded, HHI Group

operates the on-the-spot reward program for excellent performance. Various

reward systems are in place at each affiliate with the aim to foster a culture of

harmony and encouragement.

RewardSystem Description

HHI Award, Hyundai Electric

Award, HCE Award, Mipo Award of

the Year, Hyundai Robot Award

All division heads participate in the evaluation to ensure

fair selection of award winners among employees with

excellent business achievements

On-the-spot reward for excellent

performance

On-the-spot reward is given to employees who have

contributed to cost reduction, etc. based on the profit

improvement

Hidden Hero Recognition, Praise

Your Colleague program

Mobile reward program to boost organizational vitality

and create a culture of encouragement

Others Recognition of best-performing employees, executives,

managers and production teams, sales incentives, research

performance-based pay, awards for high-performing

quality and safety teams, etc.

Entity Initiative

HHI

Holdings

̇ Ensure fair evaluation of performance

̇ Provide reasonable compensation based on personal performance

̇ Strengthen incentives for contribution to robot business growth or related

achievements

HHI ̇ Plan and operate various welfare programs to enhance employees’ satisfaction

̇ Create a culture of work-life balance to prepare for 52-hour workweek system

Hyundai

Electric

̇ Build a consensus to overcome the crisis

̇ Expand performance-based reward system (sales incentives, research incentives,

etc.)

HCE ̇ Ensure fair evaluation of performance

̇ Provide reasonable compensation based on personal performance

̇ Expand rewards for contributing to corporate earnings

HMD ̇ Establish performance-centered HR system through fair evaluation

̇ Foster a culture of harmony and encouragement by expanding the target and

scale of rewards

Employees’ Quality of Life

HHIGroupoperatesabenefitsprogramundertheprincipleofprovidingpracticalsupportsforvariousneedsof

itsemployees.Wehelpemployeesmaintainthework-and-lifebalancebyofferingsystematicsupportrangingfrom

aworkcultureofthecompanytohousing,family,leisureactivitysupportandretirementpreparation.

Key Programs

Performance Indicators

Housing&Living

MedicalService

Family

RetirementPlanning

LeisureActivities

WorkCulture

̇ Loan interest support

̇ Housing support for single

employees

̇ Incentives for family events

̇ Encouragement for maternity/

parental leave

̇ Nursing room, in-house childcare

facilities

̇ Tuition for children

̇ Vacation facilities

̇ Comprehensive leisure town

̇ Self-development block leave for

those promoted

̇ Medical expense support

̇ Medical checkup for family ̇ Retirement planning consulting

̇ Retirement pension program

̇ Personal pension support

̇ PC-Off program

̇ Flexible working program

̇ Workplace bullying prevention

program

1 Estimated based on money gift for birth paid by the company

2 The percentage of workers staying at work at the end of 2018 after returning from parental leave in 2017


Loan interest support amount KRW 100 million 1.6 113.2 19.2 15.4 20.3

Employees on maternity

leave

Male Persons 0 0 2 0 0

Female Persons 0 0 0 4 2

Employees on

parental leave

Employees in

scope1Male Persons 5 473 79 47 67


Employees taking

leave



Employees having

returned to work



Continued service

rate2Male Persons 100 77 50 100 50

Female Persons N/A 50 100 0 75

Average continued service period Years 12.2 15.7 18.3 15.4 16.2

Retirement planning consulting attendees Persons 2 425 54 37 55

Retirement pension system DB KRW 100 million 85 6,134 789 577 1,437

DC KRW 100 million N/A N/A 5.6 4 N/A

Personal pension support amount KRW 100 million 0.65 36 8.14 3.21 7.4

In-house employee benefits fund KRW 100 million 1 68.16 26.7 5 64.9


114 115

Key Activities and

Achievements

RetirementPensionProgram

HHI Group operates a retirement pension system, for which all employees become

eligible after one year of service. All employees aged 56 and older are under the

Defined Contribution (DC) plan, while the rest are under the Defined Benefit (DB)

plan, as agreed between the management and the labor union.

RetirementPlanningConsulting

HHI Group offers retirement planning consulting to help employees maintain

a healthy and stable life even after retirement. During the consulting session,

participants learn about asset and health management and share information

on starting a business or a new job for a new chapter of their life. Out of 661

people retiring across HHI Group, 573 participated, recording a high completion

rate of 86.7%. In 2018, there were 11 classes in five different sessions, and a total

of 32 hours were spent on the consulting. Going forward, we plan to improve

the program to reflect the needs of our employees as much as possible, while

incorporating activities such as experiencing successful retirement, couple

programs, and special lectures on IT & economy.

PC-Off&FlexibleWorkhourPrograms

With the amendment to the Labor Standards Act in May 2018, the maximum

workhours have now been reduced to 52 per week, including overtime/holiday

work. Under the new system, HHI Group is also striving to create a flexible work

environment that promotes work-life balance and efficient working conditions. We

have a PC-Off system that automatically shuts down PCs of all individuals at a fixed

time. In addition, employees are asked to plan their work and apply for overtime

work in advance, only up to 12 hours a week. For jobs that require more than 52

hours a week in the peak period, such as commissioning and mounting, a three-

month flexible working hours scheme is implemented. Currently, the system is

applied to 11 cases (565 employees) since the agreement between the labor and

the management in July 2018.

WorkplaceBullyingPreventionProgram

HHI Group plans to change various company policies (governing employment,

disciplines and others) to preemptively respond to the scheduled revisions in July

2019 to the Labor Standards Act to strictly ban workplace bullying. In addition, we

will establish a process to report/investigate/handle harassment incidents in the

workplace and run anti-bullying campaigns through various media such as in-house

broadcasts, news, bulletin boards, and pay slips. Starting in 2019 when the revised

law goes into effect, we will handle any harassment case in accordance with relevant

procedures and provide preventive training every year for the establishment of a

sound culture.


HHI

Holdings

̇ Provide benefits for settlement following relocation of worksite

̇ Support retirement planning consulting for a new chapter of life

̇ Create a culture that values employees taking maternity/child leave

HHI ̇ Develop and operate various benefits systems to enhance employee satisfaction

̇ Promote work-life balance in line with the 52-hour workweek system

̇ Create a workplace where employees want to come to work by caring for those

taking maternity/parental leave and operating motherhood protection program

Hyundai

Electric

̇ Motivate employees by improving the working environment (renewing the

cafeteria, improving office environment)

̇ Stabilize the organization and cultivate a positive work culture

HCE ̇ Operate an employee-friendly benefit system

̇ Support retirement planning consulting for a new chapter of life

̇ Create a culture that values employees taking maternity/child leave

HMD ̇ Strengthen support for stable living after retirement

̇ Operate benefits for promoting work-life balance and childbirth

̇ Improve facilities for the greater convenience of employees


116 117

Shared Growth

HHIGrouppursuessharedgrowthwithpartnersinordertosecuresustainablecompetitivenessandlayafoundationfor

afairsociety.Supportforfinancing,education,recruiting,technologyandmanagementwillcontinuetobeprovidedto

partnersinordertoreinforcetheirgrowthandcompetitiveness,creatingahealthycorporateecosystemwhereeveryone

cangrowhand-in-hand.

Management System

Performance Indicators



Shared Growth Fund KRW 100 million N/A 3,086 N/A N/A 690

Cash payment % 100 100 100 100 100

Early payment KRW 100 million 97 1,965 542 420 1,350

Trainee from

partner companies

Persons 114 920 249 600 548

*HHI Holdings, Hyundai Electric, and HCE to form separate shared growth funds at a later date

due to the recent split.

FinancialSupportforBusinessPartners

HHI and HMD manage a Shared Growth Fund to support the loan interest payment

of 0.82% for up to KRW 3 billion per partner. HHI Holdings, Hyundai Electric and

HCE also have plans to create a separate Shared Growth Fund to better support

partners. Furthermore, starting from 2011, partners have been paid fully in cash for

material costs, which is enhancing their liquidity. Payments are made within 10 days

of bill issuance and generally earlier before the start of summer vacation or national

holidays, to help the efficient funds management of partners. HHI, in particular,

operates a system that monitors cash payments between primary and secondary

Just,FairandLegitimatePerformance

ContinuousSystemImprovements

GroupSharedGrowthCommittee

EstablishingFairTradePractices

SharedGrowthCouncil

EnhancingCompetitivenessofPartners

SharedGrowthorganizations

̇ Refrain from engaging in business in non-related

fields

̇ Encourage businesses of small and mid-sized

companies

̇ Build support systems and practice the three

shared growth strategies

̇ Introduce and comply with the four key

guidelines of the Fair Trade Commission

̇ Establish reasonable trade practices

̇ Improve communication with partners

̇ Support sales increase of partners

̇ Support training, recruitment, technology and

financing

̇ Adjust unit price of delivery considering the

situation of the partner companies

Ensure company-wide consistent policy,

activity planning and consultation

Develop policies for mutual growth and

cooperation with primary and secondary

subcontractors

Implement shared growth policy and

activities, and provide performance

management and for shared growth

feedback

Core Value

Key Policy

Responsible

Organization

subcontractors to prevent issues that may arise from doing business with secondary

partners and to improve their payment conditions. As for HCE, it selected 5 partners

to jointly venture into overseas markets through a shared finance program, and

provided loan interest support to 87 partners, promoting their financial stability.

VibrantCommunicationwithBusinessPartners

Entities of HHI Group visit partners to listen to their grievances and challenges,

and devise necessary solutions. Each year, HHI, HMD and HSHI invite committee

members from business partners to a new year’s party. At the party, important

business updates are shared, and outstanding partners are rewarded based on

quality management and on-time delivery.

SupportforTrainingandHumanResources

Various training programs are provided to partners to improve the capabilities of

their executives and employees. Ever since the shared growth training center was

launched in 2013, training opportunities have also been offered to secondary and

tertiary partners. In addition, professionals are sent to support certain job duties,

such as product quality inspection experts who help enhance the partners’ quality

management capacity. HHI utilizes the Technical Education Institute to train skilled

workers and help them find jobs at partner firms. Through this Institute, 17 people

were recruited by 13 business partners during 2018.

SupportforTechnicalDevelopmentandSalesExpansion

HHI Group provides a wide range of technological support, such as transferring

new technology, partially sharing licenses or visiting partner companies to offer

technological assistance. Furthermore, HHI Group jointly develops new technology

and applies for a patent alongside the partners, aiming to bolster their technical

competency. Each year, the Group helps increase the sales of partners by jointly

venturing into overseas markets and promoting their technologies to potential

customers at industry trade shows held inside and outside of Korea.

GlobalHyundaiIntegratedProcurementSystem(G-HiPRO)

HHI Group established the Global Hyundai Integrated Procurement System (G-HiPRO)

in order to enhance transparency and fairness of the contract process. G-HiPRO’s

electronic bidding system transparently discloses our procurement in quotes,

technical review, bidding and internal review, improving efficiency across the entire

contract process from contract signing, delivery, issuance of transaction receipt, to

payment.


118 119


HHI

Holdings

̇ Provide training and technical support to after-purchase service providers and

joint ventures in China

HHI ̇ Support partners to increase sales and source funding

̇ Provide technical, training and workforce support

̇ Operate G-HiPRO

Hyundai

Electric

̇ Provide technical guidance for the training of professionals

̇ Expand opportunities to participate in new product development to enhance

competitiveness

̇ Expand regular quality training and inspection support to improve quality level

HCE ̇ Create a shared growth fund

̇ Provide support in conjunction with universities/research institutions by holding

technology briefing sessions

̇ Provide partner companies with guidance for quality/technical improvement

HMD ̇ Establish procedures for requesting technical data from suppliers

̇ Promote the suggestion system for partner companies


120 121

Demonstrating Our Commitment to

Global Corporate Citizenship

HHI Group pursues a society of shared happiness under the core

values of love, sharing and happiness. We will make a better future

by creating shared values with strategic social contribution activities.

1.SocialContribution 124p

123


Social Contribution

HHIGrouphasconductedvariousactivitiestoimprovethelivesoflocalresidentsunderitsmanagementphilosophyof

contributingtothedevelopmentofthenationandsocietyasaglobalcorporatecitizen.Inthatlight,weorganizevarious

programswiththeparticipationofemployeesandvolunteers,tosharewiththemarginalizedinourneighborhoodand

redistributeprofitstothesociety,whichwetakeasourkeysocialresponsibility.In2019,weplantoescalateoureffortsto

reachouttothelocalcommunitiesandmakemeaningfulcontributionbyformingavolunteergroupthatconsistsofHHI

Groupemployees.

Key Activities


Community Development

Program

Sharing Activities by

Employees

One-CompanyOne-VillageCampaign

HHI and HMD have formed sisterhood relations with many rural villages, including

Dongmyung Village in Miryang, to create mutually beneficial ties with these

agricultural/fisheries communities. We have purchased food ingredients for the

in-house cafeterias from our sister villages in a way to provide them with stable

income streams, and volunteers to help them during busy seasons.

TraditionalMarketRevitalizingCampaign

HHI, Hyundai Electric and HCE have been purchasing and sharing Onnuri gift

certificates that can only be used in local traditional markets since 2011 in an

effort to revitalize traditional markets, which play a vital role in boosting the local

economy. In 2018, we purchased KRW 105 million worth of Onnuri gift certificates

and provided them to the underprivileged and social welfare facilities.

PaycheckContributionCampaign

In 2018, a total of 25,000 employees participated in the wage tail-cut contribution

(odd amount under KRW 1,000) campaign and raised around KRW 190 million.

We also organize other campaigns, such as One Dollar for Love and Hope for

Holidays, to help the less privileged in our neighborhood. The fund raised from the

campaign were given to the Ulsan branch of Community Chest of Korea, Korea

Heart Foundation, Korean Association for Children with Leukemia & Cancer, Korea

National Council on Social Welfare, and Child Fund Korea.

SharingwithLocalSeniorCitizensCenters

For over 20 years, HHI Group has been supporting local senior citizens centers

to show respect for the elders and share love with neighbors. We have built

relationships with senior citizen centers across Ulsan and conducted volunteer

activities such as delivering rice and repairing facilities.

SupportforGrayAreasofWelfare

With the aim of promoting emergency responses and eliminating the gray areas of

welfare, HHI launched an emergency support project for distressed families in April

2016. In 2018, funding of KRW 36 million was used to support children in need of

social protection from 31 households, and KRW 49 million was set aside to provide

tuition and textbooks to child breadwinners and students from 40 households

supported by the national basic living security system. In recognition of its continued

effort to improve people’s daily lives, HCE was awarded a plaque of appreciation

from the mayor of Seongnam City in November 2018. HCE plans to expand its

volunteer activities by matching each business division with one welfare facility.

CharityBazaarwithLove

For the 25th Charity Bazaar with Love held in November 2018, donations were

received from employees of HHI Group, local community organizations, heads of

external organizations, local celebrities, and Ulsan Hyundai Football Club members

for the charity sales. A total of 12,000 pieces of donations were sold to local

residents at bargain prices. The proceeds were used to hold the Making Kimchi with

Love event and were awarded as scholarships for students in Ulsan.

MakingKimchiwithLove

This annual event is for making and sharing kimchi with neighbors in need. The

event has become one of the flagship philanthropic activities of HHI Group, which

began in 1991. In November 2018, about 250 employees and volunteers made

kimchi from 8,000 heads of cabbage and then shared them with 30 local welfare

facilities and 1,200 underprivileged households in the community.

SpringPicnicwithPeoplewithDisabilities

Since 1992, HHI Group has been a proud sponsor of Roly Poly (oddugi) Party, the

largest festival for the people with disabilities in Ulsan. In 2018, we invited 1,800

students with mental disabilities from special schools and social welfare facilities and

Category Unit HHI

Holdings

HHI Hyundai

Electric

HCE HMD

Sharing by

Employees

Volunteering hours Hours N/A 10,059 N/A 2,480 3,012

Paycheck

contribution

KRW

1,000

2,055 117,156 34,720 12,000 30,007

No. of paycheck

contribution

participants

Persons 312 15,296 7,104 297 2,474

LocalCommunitySupportActivities

SharingActivitiesbyEmployees

Arts&CulturalActivities

̇ Participation in the campaign

encouraging every company to

build a sisterhood relationship

with one rural village (a.k.a One-

Company One-Village Campaign)

̇ Participation in the traditional

market revitalizing campaign

̇ Paycheck contribution campaign

̇ Sharing with local senior citizen

centers

̇ Support for the socially

marginalized

̇ Charity Bazaar with Love

̇ Making Kimchi with Love

̇ Spring Picnic for Disabled

̇ Briquet Sharing for Love

̇ Hyundai Arts Center

̇ Hanmaeum Center

̇ Supporting local arts organizations

̇ Lobby Concert

Part 3. Sustainability Performance DemonstratingOurCommitmenttoGlobalCorporateCitizenship

124 125

300 volunteers and teachers to a picnic to an amusement park.

SharingActivitiesofNewJoiners

We organized volunteer activities for loving, sharing and giving with new recruits in

2018. In February, October and November, about 200 new-hired employees and 60

experienced employees participated in volunteering activities at three local welfare

facilities – Taeyeon Rehabilitation Center, Hyejinwon and, Ulsan Chamsarang Center.


HHI

RelaySharing

HHI runs the Relay Sharing program to keep the volunteer activities and donations moving. In April 2018,

we invited 150 workers and volunteers at community welfare centers for a musical, to express appreciation for their

continued support and devotion for those in need in our community. A relay of donating rewards also spread among

employees, not to mention contribution from diverse employee clubs and by individual employees, fostering the spirit of

sharing throughout the year.

PraiseYourColleagueCampaign

Since April 2016, HHI has been running its Praise Your Colleague Campaign, under which employees give points to a

colleague they want to praise, and the company sets aside KRW 100 to donate to society for every 1 point awarded. The

program has been an effective tool in not only developing a positive organizational culture where members encourage each

other but also raising a fund for year-end sharing. In 2018, a funding of KRW 25 million was raised and used to organize a

Christmas event in December in partnership with the Ulsan Chapter of Child Fund Korea. The employees who accumulated

the most points for 2018 became Santa Clause of the day and doled out gifts to 260 children from less privileged families.

EnvironmentalProtectionActivity

We have been actively involved in environmental protection activities in and around mountains, rivers and seaside areas.

We also organize and host various environment protection events such as one company-one stream cleaning campaign

and clean seashore campaign to raise awareness about environmental protection among local residents.

SmokingCessationClinicFund

Since 2005 when the fund was formed, HHI has raised a fund worth of KRW 134.97 million to help the less privileged.

Continuing on for 14 years, the Fund collected KRW 1.7 million from 17 participating employees in 2018 and donated the

money to low-income families via the Ulsan Chapter of Korean Red Cross.

HamaeumJajangmyeonProject

In collaboration with Hanmaeum Food and Ulsan Dong-gu Social Welfare Center, HHI offers jajangmyeon (black-bean-

sauce noodles) and tangsuyuk (pork with sweet and sour sauce) to 250 citizens at local welfare centers on a monthly

basis. HHI bears the entire expense for ingredients and chefs from Hanmaeum Food cook the food for the marginalized

class to enjoy, promoting activities for sharing.

Hyundai Electric

Sisterhoodsponsorshipagreements

In 2018, Hyundai Electric signed a sisterhood sponsorship agreement with two local welfare facilities, Love House and

Arium, and started various local community support programs to fulfill its responsibility as a responsible corporate citizen.

HCE

CoalBriquettesDelivery

At HCE, new hires have been delivering coal briquettes to seniors living alone and low-income families in the run-up

to the cold winter season every year since 2017. Coal briquettes are purchased with the money raised from the Coin

Donation Campaign the company holds every year to promote sharing and engagement with local communities.

SmallConcertinSoi-myeon

HCE has been supporting Small Concerts in Soi-myeon, a small village where the company’s Eumseong Plant is located,

striving to set an example of a good corporate citizen that grows together with the local community.

HMD

ScholarshipSupport

Since 2006, HMD has provided annual scholarships to children from low-income families through Child Fund Korea.

In 2018, we granted KRW 6 million in scholarships, KRW 500,000 each for 12 children from a single parent family, on a

national basic living security system, or placed in foster care.


126 127


HHI

Holdings

Launchofsocialcontributionprograms

̇ Provide low-income families in the local community with meals in association with

community welfare organizations

̇ Support teenagers from immigrant or multicultural families and help them

become settled

HHI Localcommunitycontribution

̇ Charity Bazaar with Love & Making Kimchi with Love

̇ Distribution of Onnuri gift certificates & goods with the marginalized for holiday

seasons

̇ Praise Your Colleague Campaign

Sponsorship.Sharing

̇ Roly Poly (oddugi) Party for the disabled

̇ CSR Joint Program “Special Companion, Flying Together”

̇ “Walk For Sharing” with Korean Red Cross

VitalizationofHHIGroupsocialcontribution

̇ Form an employee volunteer corp

̇ Participate in HHI Group’s volunteer organization

Hyundai

Electric

̇ Programs for the socially marginalized households

̇ Sharing at local community senior citizens center

̇ Support sister social welfare facilities

HCE ̇ Paycheck contribution (Wage tail-cut, coin collection)

̇ Continued volunteering (Division-specific volunteering at welfare facilities, support

sister welfare facilities)

HMD ̇ Create one volunteer team per division

̇ Vitalize employee volunteering with focus on kids from low-income families and

orphans

Arts & Culture HHI operates Hyundai Arts Center and Hanmaeum Center in order to provide access

to high-quality cultural activities for local residents. Based on our accumulated

experiences of management know-how, we contribute to expanding the horizon

of culture and arts for the benefit of the local residents by providing a variety of

cultural programs.

CulturalFacilities

Facility Foundationyear Introduction

Hyundai Arts

Center

1998 The largest cultural center in Ulsan with a high-quality

performance theater, art gallery, cinema and sport facilities

Hanmaeum

Center

1991 Provider of continuing education programs for local

communities with sports facilities (swimming pool and gym),

cinema, gallery and an art academy

Performances&ExhibitionsatHyundaiArtCenterin2018

FacilityOperationStatus

Facility Unit Record

Hyundai Arts

Center

Concert Hall Planned Programs No. 21

Seat Occupancy % 84

Visitors Persons 27,591

Chamber Hall Planned Programs No. 4

Seat Occupancy % 98


Cinema Screenings No. 141


Exhibition Exhibitions No. 6


Hanmaeum

Center

Cultural courses No. 57

Sports courses No. 105

Category Title

Performance Piano Recital by Cho Sung-jin

Piano Recital by Yuhki Kuramoto

Guitar Recital by David Russell

La Boheme by Korea National Opera

Musical Man of La Mancha

Musical 42nd Street

Universal Ballet Giselle

Exhibition The Great Graffiti

Leiji Matsumoto Exhibition : Galaxy Express 999

Meeting with Young Writers from Ulsan : Splendor of Youth

When Blooming Spring Comes

Korean Contemporary Craft

Culture & Arts Promotion

Activities

SupportingLocalArtsOrganizations

Hyundai Arts Center provides four local amateur arts organizations – Ulsan

Hyundai Philharmonic Orchestra, Ulsan Men’s Choir, Dong-gu Ladies Choir, and

Hyundai Boy’s and Girl’s Choir – with a permanent practice hall, concert hall,

and performance cost support. It has also been supporting the USP Chamber of

Commerce, which was founded with Ulsan University, with expenses for operation

since 2007. These organizations continue to actively engage in activities such as

holding regular concerts and contribute to the development of community by

performing arts and winning prizes at national competitions.

LobbyConcert

On the 2nd and 4th Wednesdays of every month, we provided professional and

amateur artists with a chance to perform at a lobby concert held in the lobby


128 129

2019 Initiatives

Performances Scheduled

for 2019

Category Classical music Musical Play Ballet Live concert Kids Total

No.ofperformances 4 5 1 1 8 1 20

HHI Group will contribute to improving the quality of life and the access to cultural

& art content for local residents through popular and quality performances and

exhibitions. In addition, we plan to organize performances and exhibitions that can

be enjoyed by audiences of various generations, including students, young people,

and middle-aged people.

of Hyundai Arts Center. We provide a free stage and musical instrument for the

performers and provide local residents with the opportunity to enjoy musical

performances in their daily lives.


130 131

PART 4.

APPENDIX

SummaryConsolidatedFinancialStatements 133

IndependentAuditor’sReport 136

InformationDisclosureActivities 140

Third-PartyAssuranceStatement 141

GRIContentIndex 144

MembershipStatus 148

Summary Consolidated Financial Statements

TitleofAccount 2018 2017

Current assets 8,884,243 7,827,203

Cash and cash equivalents 1,099,824 1,126,274

Trade and other receivables 2,798,650 3,155,867

Short-term financial assets 238,611 40,183

Inventories 4,329,883 3,301,983

Other current assets 417,277 202,894

Non-current assets 14,463,576 13,061,367

Investments in associates and joint ventures 4,075,972 3,411,467

Long-term trade and other receivables 208,090 119,168

Long-term financial assets 5,908 8,603

Investment property 10,635 10,635

Property, plant & equipment 7,885,741 7,233,872

Intangible assets 2,091,826 2,159,375

Other non-current assets 185,404 118,247

Totalassets 23,347,820 20,888,570

Current liabilities 8,660,183 6,528,696

Non-current liabilities 4,133,477 4,258,009

Totalliabilities 12,793,660 10,786,706

Capital stock 81,433 81,433

Capital surplus 4,783,119 6,774,613

Capital adjustments (543,101) (500,444)

Accumulated other comprehensive income 104,031 185,989

Retained earnings 3,302,009 946,761

Non-controlling interests 2,826,668 2,613,513

Totalequity 10,554,160 10,101,865

TitleofAccount 2018 Forthe9monthsendedDec.31,2017

Revenue 27,256,650 14,299,512

Operating profit 861,427 843,038

Net profit 283,985 1,013,033

Equity attributable to owners of the parent 268,619 933,514

Non-controlling interests 15,367 79,520

Total comprehensive income 284,500 992,913

Equity attributable to owners of the parent 279,667 917,213

Non-controlling interests 4,834 75,700

Earnings per share (Unit: one KRW) 18,371 74,413

HHIHoldings (Unit: KRW 1 million)

SummaryConsolidatedFinancialStatements

132 133

TitleofAccount 2018 2017 2016

Current assets 12,316,693 17,663,720 25,864,819

Cash and cash equivalents 3,041,786 3,239,727 4,326,493

Trade and other receivables 1,477,334 1,942,374 5,195,834

Contract assets 3,677,787 - -

Due from customers for contract work - 3,357,947 5,275,520

Inventories 1,009,063 845,360 3,879,526

Other current assets 3,110,723 8,278,312 7,187,446

Non-current assets 12,413,206 12,745,128 23,084,441

Investments in associates and joint

ventures

403,980 142,287 454,028

Long-term financial assets 125,061 134,966 502,567

Investment property 144,828 233,864 240,607

Property, plant & equipment 10,269,011 11,046,256 18,729,240

Intangible assets 89,483 105,443 1,962,484

Other non-current assets 1,380,843 1,082,312 1,195,515

Totalassets 24,729,899 30,408,848 48,949,260

Current liabilities 9,410,253 15,614,871 23,237,005

Non-current liabilities 2,208,682 2,421,939 7,925,693

Totalliabilities 11,618,935 18,036,810 31,162,698

Capital stock 353,866 283,327 380,000

Capital surplus 2,483,377 1,049,896 1,124,896

Hybrid securities 428,589 428,589 428,589

Capital adjustments (8,448,228) (8,355,403) (1,367,899)

Accumulated other comprehensive

income

1,020,901 1,478,130 1,937,430

Retained earnings 16,043,717 16,236,902 13,433,929

Non-controlling interests 1,228,742 1,250,597 1,849,616

Totalequity 13,110,963 12,372,038 17,786,562


Revenue 13,119,891 15,468,836 22,300,438

Operating profit (522,520) 14,646 391,530

Net profit from continuing operations (644,987) (93,390) 15,543

Net profit from discontinued operations 191,377 2,786,532 611,448

Net profit (453,610) 2,693,142 626,991

Equity attributable to owners of the

parent

(489,060) 2,457,750 545,171

Non-controlling interests 35,450 235,392 81,820

Total comprehensive income (551,775) 2,607,049 2,460,390


parent

(581,614) 2,376,638 2,247,730


Earnings per share from continuing

operations (Unit: one KRW)

(10,434) (3,550) (718)

Earnings per share from discontinued


2,579 48,348 9,487


Current assets 1,801,360 6,776,201 6,546,317

Cash and cash equivalents 280,463 562,238 804,379

Short-term financial assets 358,102 23,112 4,038,565

Trade and other receivables 66,767 234,126 534,966

Inventories 160,144 95,935 161,881

Other current assets 146,457 147,260 199,426

Assets held for sale - 5,080,519 -

Non-current assets 1,662,374 1,543,238 2,680,000

Investments in associates - - 12,486

Long-term financial assets 16,131 286,420 1,281,007

Property, plant & equipment 1,518,943 1,089,747 1,126,344

Intangible assets 2,929 3,112 178,850

Other non-current assets 9,202 27,018 8,090

Totalassets 3,463,734 8,319,439 9,226,317

Current liabilities 1,076,380 5,904,637 5,471,850

Non-current liabilities 70,180 75,660 1,496,078

Totalliabilities 1,146,560 5,980,298 6,967,928

Capital stock 199,711 100,000 100,000

Consolidated capital surplus 82,290 82,500 82,500

Consolidated capital adjustments (40,863) (40,854) (41,041)

Consolidated accumulated other

comprehensive income

231,762 356,266 721,303

Consolidated retained earnings 1,816,670 1,718,864 1,279,692


Totalequity 2,317,174 2,339,141 2,258,389


Revenue 2,403,016 2,453,433 3,446,458

Operating profit 70,896 107,949 191,070

Consolidated net profit 120,655 445,157 39,600


parent

85,014 436,934 34,573


Earnings per share from continuing


1,483 13,858 7,333

Earnings per share from discontinued


649 (2,903) (5,599)


Current assets 1,651,652 1,490,453

Cash and cash equivalents 376,329 241,374

Trade and other receivables 649,019 841,533

Due from customers for contract work - 5,185

Contract assets 145,931 -

Inventories 424,705 357,615


Non-current assets 674,404 604,124

Long-term financial assets 3,098 1,790

Long-term trade and other receivables 1,194 1,140

Property, plant & equipment 527,967 471,562

Intangible assets 17,410 55,463


Totalassets 2,326,056 2,094,577

Current liabilities 1,123,316 588,831

Non-current liabilities 351,441 465,631



Capital surplus 874,149 925,475



income

63,625 62,923

Retained earnings (173,308) 15,625

Non-controlling interests 287 303

Totalequity 851,299 1,040,114

TitleofAccount 2018 Forthe9months

endedDec.31,

2017

Revenue 1,940,412 1,449,573

Operating profit (100,581) 62,419

Net profit (178,926) 14,281


parent

(178,910) 14,281

Non-controlling interests (16) -

Total comprehensive income (188,246) 13,098


parent

(188,230) 13,098

Non-controlling interests (16) -

Earnings per share (Unit: one KRW) (8,812) 3,379


Current assets 2,203,851 1,553,478

Cash and cash equivalents 322,445 426,006

Short-term financial assets 199,784 -

Trade and other receivables 595,939 425,471

Inventories 1,024,779 691,156


Non-current assets 922,664 675,179

Property, plant & equipment 650,496 539,002

Intangible assets 152,968 121,600


Totalassets 3,126,515 2,228,657

Current liabilities 945,143 785,619

Non-current liabilities 613,205 272,100



Capital surplus 974,479 1,024,120



income

64,118 65,639

Retained earnings 125,555 44,993

Non-controlling interests 332,200 (764)

Totalequity 1,568,167 1,170,938

TitleofAccount 2018 Forthe9months

endedDec.31,2017

Revenue 3,233,935 1,886,747

Operating profit 208,732 95,233

Net profit 141,055 46,609


parent

89,937 46,609

Non-controlling interests 51,118 -

Total comprehensive income 134,015 46,495


parent

85,474 46,495

Non-controlling interests 48,541 -

Earnings per share (Unit: one KRW) 4,585 3,119

HHI (Unit: KRW 1 million) HMD (Unit: KRW 1 million)HyundaiElectric (Unit: KRW 1 million) HCE (Unit: KRW 1 million)

※ The Consolidated Statement of Comprehensive Income presents income

from continuing and discontinued operations separately, with the comparative

numbers of the preceding periods restated for the ease of reference.

Part 4. Appendix SummaryConsolidatedFinancialStatements

134 135

Independent Auditors’ Report

We have audited the consolidated financial statements of HYUNDAI HEAVY

INDUSTRIES HOLDINGS CO., LTD. and its subsidiaries (“the Group”), which comprise

the consolidated statements of financial position as of December 31, 2018 and 2017,

the consolidated statements of comprehensive income, changes in equity and cash

flow for the year ended December 31, 2018 and the nine-month period ended

December 31, 2017 and notes, comprising significant accounting policies and other

explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in

all material respects, the consolidated financial position of the Group as of December

31, 2018 and 2017, and its consolidated financial performance and its consolidated

cash flows for the year ended December 31, 2018 and the 9-month period ended

December 31, 2017 in accordance with Korean International Financial Reporting

Standards (“K-IFRS”).

We conducted our audits in accordance with Korean Standards on Auditing (KSAs).

Our responsibilities under those standards are further described in the Auditors’

Responsibilities for the Audit of the Consolidated Financial Statements section

of our report. We are independent of the Group in accordance with the ethical

requirements that are relevant to our audit of the consolidated financial statements

in the Republic of Korea, and we have fulfilled our other ethical responsibilities in

accordance with these requirements. We believe that the audit evidence we have

obtained is sufficient and appropriate to provide a basis for our opinion.

Without qualifying our audit opinion, users of this audit report need to pay

attention to the following matter. As described in Note 45 to the consolidated

financial statements, the Group has restated its consolidated financial statements of

comprehensive income, consolidated statement of changes in equity and cash flows

for the period from April 1, 2017 to December 31, 2017, based on determination

that Hyundai Oilbank Co., Ltd. has no control over the Hyundai and Shell Base Oil

Co., Ltd. As a result of the accounting error, the net assets of the Group decreased

by KRW 124,059 million as of December 31, 2017 and the net income for the period

from April 1, 2017 to December 31, 2017 decreased by KRW 29,861 million.

Key audit matters are those matters that, in our professional judgment, were of

most significance in our audit of the consolidated financial statements as of and for

the year ended December 31, 2018. These matters were addressed in the context

of our audit of the consolidated financial statements as a whole, and in forming our

opinion thereon, and we do not provide a separate opinion on these matters.

The management performed an impairment test for the CGU by estimating the

recoverable amount of CGU at the end of the reporting period. As described in Note

4(12) to the consolidated financial statements, an impairment loss is recognized for

a CGU if the carrying amount of the CGU exceeds its recoverable amount.

The recoverable amount used for the impairment assessment at the end of

the current year is the value–inuse. In estimating the recoverable amount, key

assumptions such as sales, operating expenses, growth rates and discount rates are

used. Considering significant degree of judgment in estimating the value–in-use,

the likelihood of management bias and potential effects of the impairment on the

consolidated financial statements, we identified the assessment of impairment on

goodwill and intangible assets as a key audit matter.

The primary procedures we performed to address this key audit matter included the

following:

̇ Assessed the qualification and independence of the external institution engaged

by the Group for the impairment assessment

̇ Evaluated the key assumptions used to estimate the value-in-use which included

the discount rates and others and the methodology of the assessment, by

engaging our internal valuation specialist.

̇ Compared the financial data used for impairment assessment and mid- to

long-term business plans confirmed by the management

̇ Compared the future cash flows forecasts prepared in the prior year with the

current year’s performance to assess the Group’s ability to accurately forecast .

The procedures and practices utilized in the Republic of Korea to audit such

consolidated financial statements may differ from those generally accepted and

applied in other countries.

Management is responsible for the preparation and fair presentation of the

consolidated financial statements in accordance with K-IFRS, and for such internal

control as management determines is necessary to enable the preparation of

consolidated financial statements that are free from material misstatement, whether

due to fraud or error.

In preparing the consolidated financial statements, management is responsible

for assessing the Group’s ability to continue as a going concern, disclosing, as

applicable, matters related to going concern and using the going concern basis of

accounting unless management either intends to liquidate the Group or to cease

TotheShareholdersandBoardofDirectorsof

HYUNDAIHEAVYINDUSTRIESHOLDINGSCO.,LTD.

Opinion

Basis for Opinion

Assessment of impairment

on cash-generating unit

(CGU)

Emphasis of Matter

Key Audit Matters

Other Matter

Responsibilities of

Management and Those

Charged with Governance

for the Consolidated

Financial Statements

Part 4. Appendix IndependentAuditors’Report

136 137

operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial

reporting process.

Our objectives are to obtain reasonable assurance about whether the consolidated

financial statements as a whole are free from material misstatement, whether due to

fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable

assurance is a high level of assurance, but is not a guarantee that an audit conducted

in accordance with KSAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually

or in the aggregate, they could reasonably be expected to influence the economic

decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with KSAs, we exercise professional judgment and

maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial

statements, whether due to fraud or error, design and perform audit procedures

responsive to those risks, and obtain audit evidence that is sufficient and

appropriate to provide a basis for our opinion. The risk of not detecting a material

misstatement resulting from fraud is higher than for one resulting from error, as

fraud may involve collusion, forgery, intentional omissions, misrepresentations, or

the override of internal control.

̇ Obtain an understanding of internal control relevant to the audit in order to

design audit procedures that are appropriate in the circumstances, but not for

the purpose of expressing an opinion on the effectiveness of the Group’s internal

control.

̇ Evaluate the appropriateness of accounting policies used in the preparation of the

consolidated financial statements and the reasonableness of accounting estimates

and related disclosures made by management.

̇ Conclude on the appropriateness of management’s use of the going concern

basis of accounting and, based on the audit evidence obtained, whether a material

uncertainty exists related to events or conditions that may cast significant doubt on

the Group’s ability to continue as a going concern. If we conclude that a material

uncertainty exists, we are required to draw attention in our auditors’ report to the

related disclosures in the consolidated financial statements or, if such disclosures

are inadequate, to modify our opinion. Our conclusions are based on the audit

evidence obtained up to the date of our auditors’ report. However, future events

or conditions may cause the Group to cease to continue as a going concern.

̇ Evaluate the overall presentation, structure and content of the consolidated

financial statements, including the disclosures, and whether the consolidated

financial statements represent the underlying transactions and events in a manner

that achieves fair presentation.

This report is effective as of March 19, 2019, the audit report date. Certain subsequent events

or circumstances, which may occur between the audit report date and the time of reading

this report, could have a material impact on the accompanying consolidated financial state-

ments and notes thereto. Accordingly, the readers of the audit report should understand that

the above audit report has not been updated to reflect the impact of such subsequent events

or circumstances, if any.

Auditors’ Responsibilities

for the Audit of the

Consolidated Financial

Statements

̇ Obtain sufficient appropriate audit evidence regarding the financial information of

the entities or business activities within the Group to express an opinion on the

consolidated financial statements. We are responsible for the direction, supervision

and performance of the group audit. We remain solely responsible for our audit

opinion.

We communicate with those charged with governance regarding, among other

matters, the planned scope and timing of the audit and significant audit findings,

including any significant deficiencies in internal control that we identify during our

audit.

We also provide those charged with governance with a statement that we have

complied with relevant ethical requirements regarding independence, and

communicate with them all relationships and other matters that may reasonably be

thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we

determine those matters that were of most significance in the audit of the

consolidated financial statements of the current period and are therefore the

key audit matters. We describe these matters in our auditors’ report unless law

or regulation precludes public disclosure about the matter or when, in extremely

rare circumstances, we determine that a matter should not be communicated in

our report because the adverse consequences of doing so would reasonably be

expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditors’ report

is Jeon, Won-Pyo.

Seoul,Korea

March19,2019

Seoul, Korea

March 19, 2019

Part 4. Appendix IndependentAuditors’Report

138 139

Information Disclosure Activities

DisclosureChannel Content

HHI Group Website Our official website introduces the group’s history, management philosophy and business models from a comprehensive perspective.

It also provides links to other related websites including the ethics management website, recruitment website and those of individual

entities within our group for user convenience.

Investor Presentations We regularly hold investor conference calls for analysts and institutional investors. By providing timely and accurate information on

our performance and outlook, we strive to enhance investors’ trust and confidence.

HHI Group Business Ethics Website HHI Group operates a separate website dedicated to updating stakeholders on major developments of our ethics management, to

further strengthen their confidence. The website introduces the group’s direction, structure and practice of business ethics and recei-

ves reports on unethical business practices, helping the group set an example of fair and transparent management.

Integrated Report This report describes HHI Group’s efforts and achievements to grow into a sustainable business. Since 2015, we have integrated integrat-

ed our annual report and sustainability report to present HHI Group’s management activities from a more comprehensive perspective.

Webzine Our monthly magazine, Magazine H, is available on the Group’s website to disclose the management activities of HHI Group, as well as ma-

jor events inside and outside the Group. It also serves as a communication channel between entities across the group.

About Supply Chains

About Government Grants

About Sanctions Imposed

HHI Group’s supply chains consist primarily of suppliers of raw materials required to

manufacture our products. In 2018, the combined amount of procurement spend by

entities with annual report filing requirements recorded approximately KRW 13.609

trillion.

We recognize government grants only when there is reasonable assurance that we

will comply with conditions attached to the grants and the grants will be received.

The government grants we receive come with conditions that they shall be used for

acquisition or construction of non-current assets. Such grants utilized are deducted from

the carrying value of the acquired or constructed assets, recognized in profit or loss

over the useful life of the depreciable assets. For 2018, amortized government grants for

PP&E were KRW 15.359 billion at HHI Holdings on a consolidated basis (See page 220 of

HHI Holdings’ annual report 2018 for further details), and KRW 3.112 billion at HHI on a

consolidated basis (See page 172 of HHI’s annual report 2018 for further details).

Of the sanctions disclosed on pages 506 through 510 of HHI Holdings’ annual

report 2018, none is related to confirmed incidents of corruption (GRI 205-3), anti-

competitive behavior (GRI 206-1) or non-compliance with laws and regulations

in the social and economic area (GRI 419-1) during the year. For those related to

occupational health and safety management (GRI 403-1) and non-compliance with

environmental laws and regulations (GRI 307-1), please refer to pages 506 through

510 of HHI Holdings’ annual report 2018.

Entity RawMaterials KeyProducts Purpose ProcurementAmount(KRW1bln.)

HHI Holdings* Casting materials, copper Driving devices, tools, electrical parts Robot manufacturing 172

HHI* Steel plates, structural steel, etc. Equipment, steel parts, outfitting, etc. Shipbuilding, etc. 8,274

Hyundai Electric Steel plates, electrolytic cathode

copper

Electric devices, steel outfitting,

steel, etc.

Transformer manufacturing, etc. 1,466

HCE Excavator bucket assy, wheel loaders

main control valves, etc.

Excavator parts, wheel loader parts,

etc.

Construction equipment

manufacturing, etc.

3,697

Total 13,609

*HHI Holdings’ spend is for its robot business, and HHI’s spend is inclusive of HMD’s.

Third-Party Assurance Statement

Lloyd’s Register Quality Assurance Limited (LR) was commissioned by Hyundai Heavy

Industries Co., Ltd. (Hyundai Heavy Industries) to provide independent assurance on

its ‘2019 HHI Group Integrated Report’ (“the report”) against the assurance criteria

below to a moderate level of assurance using AA1000AS (2008), where the scope

was a Type 2 engagement.

Our assurance engagement covered the operations and activities of Hyundai

Heavy Industries Holdings and its four major affiliates - Hyundai Heavy Industries,

Hyundai Electric & Energy Systems, Hyundai Construction Equipment and Hyundai

Mipo Dockyard (HHI Holdings and its four major affiliates) in Korea specifically the

following requirements:

̇ Evaluating adherence to AA1000 AccountAbility principles of inclusivity, materiality

and responsiveness, and reliability of performance indicators

̇ Confirming that the report is in accordance with:

̇ GRI Standards: Core option

̇ Evaluating the accuracy and reliability of data and information for only the selected

indicators listed below:

- GRI 103 (Management Approach): 103-1, 103-2, 103-3

- GRI 200 (Economic): 201-1, 201-2, 201-4, 203-1, 205-1, 205-2, 206-1

- GRI 300 (Environmental): 302-1, 302-4, 302-5, 305-1, 305-2, 305-7, 306-1, 306-2,

307-1

- GRI 400 (Social): 401-2, 401-3, 402-1, 403-1, 403-4, 404-1, 404-2, 404-3, 413-1, 419-1

- Other topic-specific disclosures: R&D Investments, Quality Internal Audit

Our assurance engagement excluded the data and information of HHI Holdings and

its four major affiliates’ suppliers, contractors and any third-parties mentioned in the

report.

LR’s responsibility is only to Hyundai Heavy Industries. LR disclaims any liability or

responsibility to others as explained in the end footnote. Hyundai Heavy Industries’

responsibility is for collecting, aggregating, analyzing and presenting all the data

and information within the report and for maintaining effective internal controls

over the systems from which the report is derived. Ultimately, the report has been

approved by, and remains the responsibility of Hyundai Heavy Industries.

Terms of engagement

RelatingtotheHHIGroup’sIntegratedReportforthe2018calendaryear

This assurance Statement has been prepared for Hyundai Heavy Industries Co., Ltd.

in accordance with our contract but is intended for the readers of this Report.

Part 4. Appendix InformationDisclosureActivities|LRIndependentAssuranceStatement

140 141

Based on LR’s approach nothing has come to our attention that would cause us to

believe that Hyundai Heavy Industries has not, in all material respects:

̇ Met the requirements above

̇ Disclosed accurate and reliable performance data and information as all errors or

omissions identified during the assurance engagement were corrected

̇ Covered all the issues that are important to the stakeholders and readers of this

report.

The expressed opinion is formed on the basis of a moderate level of assurance and

at the materiality of the professional judgement of the verifier.

Note: The extent of evidence-gathering for a moderate assurance engagement is

less than for a high assurance engagement. Moderate assurance engagements

focus on aggregated data rather than physically checking source data at

sites. Consequently, the level of assurance obtained in a moderate assurance

engagement is substantially lower than the assurance that would have been

obtained had a high assurance engagement been performed.

LR’s assurance engagements are carried out in accordance with our verification

procedure. The following task, though, were undertaken as part of the evidence

gathering process for this assurance engagement:

̇ Assessing HHI Holdings and its four major affiliates’ approach to stakeholder

engagement to confirm that issues raised by stakeholders were captured correctly.

We did this through reviewing documents and associated records.

̇ Reviewing HHI Holdings and its four major affiliates’ process for identifying and

determining material issues to confirm that the right issues were included in their

report. We did this by benchmarking reports written by HHI Holdings and its four

major affiliates, and their peers to ensure that sector-specific issues were included

for comparability. We also tested the filters used in determining material issues to

evaluate whether HHI Holdings and its four major affiliates make informed business

decisions that may create opportunities that contribute to sustainable development.

̇ Auditing HHI Holdings and its four major affiliates’ data management systems to

confirm that there were no significant errors, omissions or mis-statements in the

report. We did this by reviewing the effectiveness of data handling procedures,

instructions and systems, including those for internal verification. We also spoke

with those key people responsible for compiling the data and drafting the report.

̇ Reviewing supporting evidence made available by HHI Holdings and its four major

affiliates at Hyundai Heavy Industries’ head office in Ulsan City, its office in Seoul and

Hyundai Mipo Dockyard’s head office in Ulsan City.

̇ Checking that the GRI Content Index allows stakeholders to access sustainability

indicators.

Further observations and findings, made during the assurance engagement, are:

̇ Stakeholder inclusivity: We are not aware of any key stakeholder groups that have been

excluded from HHI Holdings and its four major affiliates’ stakeholder engagement process.

Observations

LR’s standards, competence

and independence

LR’s Opinion

LR’s approach

̇ Materiality: We are not aware of any material issues concerning HHI Holdings and its four

major affiliates’ sustainability performance that have been excluded from the report. It

should be noted that HHI Holdings and its four major affiliates have established extensive

criteria for determining which issue is material and that these criteria are not biased to

the company’s management. However, HHI Holdings and its four major affiliates should

develop and implement awareness-raising activities for material sustainability topics.

̇ Responsiveness: Hyundai Heavy Industries has conducted due diligence to effectively

deal with corruption, and other affiliates have established plans to conduct due diligence

for corruption. However, HHI Holdings and its four major affiliates should extend its due

diligence process for other material topics to understand and assess the nature of the

broader sustainability risk in relation to its activities and products.

̇ Reliability: HHI Holdings and its four major affiliates have reliable data management

systems for the indicators in the report.

LR implements and maintains a comprehensive management system that

meets accreditation requirements for ISO/IEC 17021 Conformity assessment –

Requirements for bodies providing audit and certification of management systems

that are at least as demanding as the requirements of the International Standard on

Quality Control 1 and comply with the Code of Ethics for Professional Accountants

issued by the International Ethics Standards Board for Accountants.

LR ensures the selection of appropriately qualified individuals based on their

qualifications, training and experience. The outcome of all verification and

certification assessments is then internally reviewed by senior management to

ensure that the approach applied is rigorous and transparent.

LR provides shipping classification services to Hyundai Heavy Industries. The ship

classification and verification engagement are the only work undertaken by LR for Hyundai

Heavy Industries and as such does not compromise our independence or impartiality.

May 20, 2019

LR Lead Verifier Kim,Tae-Kyoung

On behalf of Lloyd’s Register Quality Assurance Limited

17th Floor, Sinsong Building, 67 Yeouinaru-ro, Yeongdeungpo-gu, Seoul, Korea

LR reference: SEO00000466

Lloyd’s Register Group Limited, its affiliates and subsidiaries, including Lloyd’s Register Quality Assurance Limited (LRQA), and their respective officers, employees or agents are, individually

and collectively, referred to in this clause as ‘Lloyd’s Register’. Lloyd’s Register assumes no responsibility and shall not be liable to any person for any loss, damage or expense caused by

reliance on the information or advice in this document or howsoever provided, unless that person has signed a contract with the relevant Lloyd’s Register entity for the provision of this

information or advice and in that case any responsibility or liability is exclusively on the terms and conditions set out in that contract.

The English version of this Assurance Statement is the only valid version. Lloyd’s Register Group Limited assumes no responsibility for versions translated into other languages.

This Assurance Statement is only valid when published with the Report to which it refers. It may only be reproduced in its entirety.

Copyright ⓒ Lloyd’s Register Quality Assurance Limited, 2019. A member of the Lloyd’s Register Group.

Part 4. Appendix LRIndependentAssuranceStatement

142 143

GRI Content Index

GRIStandards Disclosure Content Page Remark

GRI 102:

General Disclosures

2016

102-1 Name of the organization 13

102-2 Activities, brands, products, and services 2~7, 22~43

102-3 Location of headquarters 13

102-4 Location of operations 13, 15

102-5 Ownership and legal form 81~85

102-6 Ownership and legal form 15

102-7 Scale of the organization 13, 22~43

102-8 Information on employees and other workers 13 The employees of business

partners work at the company’s

processing, assembly, outfitting,

and cabin production lines

102-9 Supply chain 140

102-10 Significant changes to the organization and its

supply chain

22~43

102-11 Precautionary principle or approach 95

102-12 External initiatives 50~53, 144~147

102-13 Membership of associations 148

102-14 Statement from senior decision-maker 10~11, 22, 28, 32, 36, 40

102-15 Key impacts, risks, and opportunities 22~43, 58~59

102-16 Values, principles, standards, and norms of behavior 12, 79

102-17 Mechanisms for advice and concerns about ethics 78~80

102-18 Governance structure 81~85

102-23 Chair of the highest governance body 81~85

102-40 List of stakeholder groups 47

102-41 Collective bargaining agreements 106~108

102-42 Identifying and selecting stakeholders 47

102-43 Approach to stakeholder engagement 47, 54, 140

102-44 Key topics and concerns raised 47, 54~55

102-45 Entities included in the consolidated financial

statements

14

102-46 Defining report content and topic boundary 55

102-47 List of material topics 55

102-48 Restatements of information N/A

102-49 Changes in reporting Refer to ‘Reporting

Overview’

102-50 Reporting period Refer to ‘Reporting

Overview’

102-51 Date of most recent report Refer to ‘Reporting

Overview’

102-52 Reporting cycle Refer to ‘Reporting

Overview’

102-53 Contact point for questions regarding the report Refer to ‘Reporting

Overview’

102-54 Claims of reporting in accordance with the GRI

Standards

Core option

102-55 GRI content index 144~147

102-56 External assurance 141~143

GRIStandards Disclosure Content Page Remark

EconomicPerformance

GRI 103:

Management Approach 2016

103-1 Explanation of the material topic and its boundary 22~43, 95~103

103-2 The management approach and its components 22~43, 95~103

103-3 Evaluation of the management approach 22~43, 95~103

GRI 201:

Economic Performance 2016

201-1 Direct economic value generated and distributed 20~21

201-2 Financial implications and other risks and

opportunities due to climate change

96

201-4 Financial assistance received from government 140

IndirectEconomicImpacts

GRI 103:


103-1 Explanation of the material topic and its boundary 124~130

103-2 The management approach and its components 124~130

103-3 Evaluation of the management approach 124~130

GRI 203:

Indirect Economic Impacts 2016

203-1 Infrastructure investments and services supported 124~130

Anti-corruption

GRI 103:





GRI 205:

Anti-corruption 2016

205-1 Operations assessed for risks related to corruption 77 Training and education

are not provided to

outside directors205-2 Communication and training about anti-corruption

policies and procedures

78

Anti-competitiveBehavior

GRI 103:





GRI 206:

Anti-competitive Behavior 2016

206-1 Legal actions for anti-competitive behavior, anti-

trust, and monopoly practices

140

SocioeconomicCompliance

GRI 103:





GRI 419:

Socioeconomic Compliance 2016

419-1 Non-compliance with laws and regulations in the

social and economic area

140

GRIUniversalStandards GRITopic-SpecificStandards

Part 4. Appendix GRIContentIndex

144 145

Topic Disclosure Content Page Remark

Energy

GRI 103:





GRI 302:

Energy 2016

302-1 Energy consumption within the organization 96

302-4 Reduction of energy consumption 96

302-5 Reductions in energy requirements of products and

services

98~99

Emissions

GRI 103:





GRI 305:

Emissions 2016

305-1 Direct (Scope 1) GHG emissions 96

305-2 Energy indirect (Scope 2) GHG emissions 96

305-7 Nitrogen oxides (NOx), sulfur oxides (SOx), and other

significant air emissions

99

EffluentsandWaste

GRI 103:





GRI 306:

Effluents and Waste 2016

306-1 Water discharge by quality and destination 100~101

306-2 Waste by type and disposal method 101

EnvironmentalCompliance

GRI 103:





GRI 307:

Environmental Compliance 2016

307-1 Non-compliance with environmental laws and

regulations

140

Employment

GRI 103:





GRI 401:

Employment 2016

401-2 Benefits provided to full-time employees that are

not provided to temporary or part-time employees

116~118

401-3 Parental leave 116

Labor/ManagementRelations

GRI 103:





GRI 402:

Labor/Management Relations 2016

402-1 Minimum notice periods regarding operational

changes

107

Topic Disclosure Content Page Remark

OccupationalHealthandSafety

GRI 103:





GRI 403:

Occupational Health and Safety 2016

403-1 Workers representation in formal joint

management–worker health and safety committees

88

403-4 Health and safety topics covered in formal

agreements with trade unions

88

TrainingandEducation

GRI 103:





GRI 404:

Training and Education 2016

404-1 Average hours of training per year per employee 109 The average hours are not

provided by gender and

employee category

404-2 Programs for upgrading employee skills and

transition assistance programs

109~113,

116~117

404-3 Percentage of employees receiving regular

performance and career development reviews

114

LocalCommunities

GRI 103:





GRI 413:

Local Communities 2016

413-1 Operations with local community engagement,

impact assessments, and development programs

124~130

MaterialTopic:DevelopingnewtechnologythroughR&D

GRI 103:





N/A - R&D Investments 60

MaterialTopic:Qualitymanagementforcustomersatisfaction

GRI 103:





N/A - Quality Internal Audit 64

MaterialTopic:Creatingvaluewithchangeandinnovation

GRI 103:





GRITopic-SpecificStandards(continued) GRITopic-SpecificStandards(continued)

Part 4. Appendix GRIContentIndex

146 147

Membership Status

HHIHoldings Korea Association of Robot Industry

Korea Electric Engineers Association

HHI Construction Association of Korea (KAC)

Korea Specialty Contractors Association

Ulsan Chamber of Commerce & Industry

Korea Association of Machinery Industry

Korea Defense Industry Association

Korean Association for Industrial Technology Security

Korea Industrial Technology Association

Korea Federation of Combustion Engines

Korea LNG Bunkering Industry Association

Korea Association for Space Technology Promotion

Korea Marine Equipment Association

Korea Offshore & Shipbuilding Association

Korea Society of Ocean Engineers

HyundaiElectric Conseil International des Grands R seaux lectriques (CIGR )

Korea Electric Association

Korea Smart Grid Association

Korea Atomic Industrial Forum

Korea Electrical Contractors Association

Korea Electrical Manufacturers Association

HCE AEB-CEC (Association of European Businesses-Construction Equipment Committee in the Russian Federation)

Korea Construction Equipment Manufacturers Association

HMD Society of Naval Architect of Korea

Ulsan Chamber of Commerce & Industry

Korea Offshore & Shipbuilding Association

Please contact our Corporate Affairs Team for any questions or

comments regarding the HHI Group Integrated Report 2019.

ContactPoint

KSOE Corporate Affairs Team Tel: +82 2-746-4738 | Email: [email protected]

HHIHoldings Management Planning Team HyundaiElectric Technology Planning Team

Management Support Team Symbiosis Team

Procurement Team Safety & Environment Team

Robot Production Team Sales Planning Dept.

Finance Team Talent Team

Quality Management Team Finance Team

HHI IR Team Strategic Procurement Team

Procurement Planning Team General Affairs Team

Technical Education Institute Quality Management Dept.

Technology Planning Team Accounting Team

Health Management Team HCE Component Financial Management Team

Compensation & Reward Team Industrial Vehicle Financial Management Team

Social Contribution Team Production Technology Dept.

Symbiosis Team Service Technology Team

Safety Planning Team Safety & Environment Team

Engine Quality Management Dept. Marketing Dept.

Ethics Planning Team HR Strategy Team

Talent Support Team HR & General Affairs Team

Talent Development Team I Finance Team

Finance Team II Strategic Procurement Team

Treasury Stock Team Product Development Dept.

Electricity Planning Team Quality Planning Team

Shipbuilding Quality Management Dept. I Employee Benefits Team

Shipbuilding Quality Management Dept. II HMD Education & Training Team

Compliance Team Labor-Management Cooperation Team

Quality Planning Team Safety Team

Marine Plant Quality Management Dept. Raw Material & Facility Procurement Team

Environmental Management Team Talent Support Team

Employee Benefits Team Material Support Dept.

HyundaiGlobalService Management Analysis Team Financial Performance Analysis Team

HR & General Affairs Team General Affairs Team

HyundaiOilbank Management Analysis Team Quality Management Dept.

Brand & Marketing Team Environment & Health Team

HyundaiArtsCenter - HHIGreenEnergy HR & General Affairs Team

ThoseCreditedwithHelpingIssueThisReport

Part 4. Appendix

148

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Documents

INTEGRATED REPORT 2019 - Hyundai Heavy Industries · supply equipment worth KRW 38.5 billion. Under this contract, Hyundai Electric is scheduled to supply gas insulated switchgears